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Compendium

The document summarizes key findings from research conducted on the human resource challenges faced by globalizing Indian companies. The research identified recruitment, learning and development, performance management, compensation, and repatriation as the main challenge areas. It provided examples of practices adopted by multinational companies and noted gaps in approaches taken by interviewed Indian companies. The research highlighted best practices that could help improve how Indian companies manage expatriates.

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Management Development Institute Gurgaon DELPHIQUE ‘08 National Management Convention 8|9 November ‘08 Research Compendium Research Compendium Emerging Business Horizons: Opportunities For Indian Companies
Table of Contents About MDI....................................................................... 5 About Delphique’08........................................................ 7 Human Research ........................................................... 8 Finance .......................................................................... 14 Marketing ....................................................................... 22 Operations...................................................................... 29 Strategy.......................................................................... 35 Information Management............................................... 43 Credits............................................................................ 49 Partners.......................................................................... 51
About MDI Management Development Institute, Gurgaon is a premier management school in India. Having been consistently ranked among the top 5 B-Schools in the country, today MDI envisions itself as a Global Business School featuring among the top 20 schools among the world. MDI has powerful global linkages with business schools in North America, Europe, South East Asia, and Australia. MDI was established in 1973 as an autonomous body by IFCI. Since its founding, the Institute has striven to meet the needs of the business world and the aspirations of its students and working managers. The result is an increasingly professional training with an international focus. MDI is strongly committed to creating, both at individual and organizational levels, cutting edge management capability through value-based education, action-centric research, best global practices, and value-added consulting. Thus MDI's Mission is to prepare global leaders who create, manage and effectively lead change across diverse organizations. MDI's focus is to sensitize graduates on ethical issues thereby developing strength of character. 5
About Delphique Delphique is the event where the action between the students and the corporate world on the MDI campus is at its apex. Delphique is the annual National Management Convention of MDI where renowned people from the industry come for some stimulating discussions on current issues, across various business functions, with the students of MDI. The topics span across a wide array of management issues ranging from revival of Indian debt markets to the HR challenges being faced by the globalizing Indian companies. Delphique's uniqueness lies in its strong research focus. Students conduct a thorough research on the topics which are decided in consultation with the industry mentors. The research work is carried out under the guidance of both the industry as well as the faculty mentors. The exchange of ideas between the leaders of today and those of tomorrow and the intense brainstorming between young minds leads to some fresh perspectives. The team presents its work to a panel of industry speakers and the students during Delphique. Delphique 08' was centred around the theme: Emerging business horizons: Opportunities for Indian companies. In the wake of global markets crashing and world economies in doldrums, the above theme becomes quite relevant as there are several opportunities lined up for emerging countries like India. Continuing the tradition of constant innovation, Delphique '08 touched new heights with Knowledge Partners across all panels, i.e. Finance, Marketing, Strategy, Operations, Information Management and HR. Research Topics for Delphique ’08: • Finance: Developing Indian Debt Markets • Human Resource: Globalizing Indian Companies - HR Challenges • Information Management: Empowering Businesses - Innovation in IT strategies • Marketing: Merchandising - Current practices in FMCG and what lies ahead • Operations: Productivity or Supply Chain - Where should Indian Manufacturing firms focus? • Strategy: Opportunity Areas and Challenges for Indian automotive component players given the current market trends and a vision to become a $35-40 billion industry 7
Knowledge Partner HUMAN RESOURCES
Globalizing Indian Companies: The HR Challenges Delphique ‘08
CMYK HUMAN RESOURCES Globalizing Indian Companies: The HR Challenges PANEL SPEAKERS å Busrai – Director, Human Resources, IBM Mr.Aquil India Ltd. å Srinivasan- Director, Transitions and Mr. Madan Employee Engagement at HCL Technologies Ltd. åRamanamurthy Vice President, Human Mr. P.V. Resources ,HCCB(Hindustan Coca Cola Beverages) å Jyotsna Bhatnagar - PGHR Chairperson Prof. (Dr) MDI, Gurgaon EXPERT OPINION HCCB(Hindustan Coca Cola Beverages) told the The HR Research team, through primary and audience that talent and not the employee moves secondary information initially presented their from one country to other. research which was appreciated by all the panelists present for the discussion. Director-HR of Transitions at HCL shared his personal experience. He was working in ICICI Mr. Aquil Bursai , stated that there is a total 180 Bank before joining HCL. He was doing a project of degrees shift from how expatriates are treated designing an expatriation policy for ICICI. For that earlier and nowadays. project, ICICI had hired Mercer as its consultant. Earlier, it was more like a lottery ticket. He told the audience that before sending Expatriates were showered with home salary and employees to overseas assignment, the company huge expatriation bonus. It was financially should be clear of its objective i.e. why the lucrative. In those times, as numbers of company is sending the employees to overseas opportunities were very less, the tag of assignments? The company can send the “Expatriates” had altogether different weightage. employees for the money or for the business or for But nowadays situation is being changing the development of that employee. When drastically. Employee goes abroad, the main issue with them is about their compensation. Company should also M r. P. V. Ramanamurthy VP-HR of consider hiring local talent. Knowledge Partner 8 HUMAN RESOURCES Delphique ‘08
KYMC Mr Aquil Busrai said there are basically five governance model to retain employees because important questions that are to be addressed when the attrition is very high. He also shared some of the talking about governance structure for expatriates. engagement initiatives that are being followed in HCL technologies to retain talent. The regular Who decides to send? Why to send? How to select committee meets, town hall get together and micro and whom to select? And most importantly how to site ensures that expatriates remain in close touch communicate to employees? with the company plans and vision. Cultural In answer to next question why the employees sensitization workshops are being regularly should be send to foreign locations rather than conducted. hiring local, he said three main factors play Thus all the three panel' members felt that HR important role needs to adopt a facilitative governance model by It saves costs to the organization. It helps being aligning goals of employees to the goals of close to customer. Gives initial exposure to vast organization and build a truly competent sensitive talent pool back home and helps enhancing their global workforce. talent and upgrading the quality of workforce. The most important decision is to decide how to select employees. He opines that decision to select should be based entirely on skill competencies and potential rather than any Body Shop option. The companies must learn from global best HR practices. The companies should follow a structure in which they define their core business architecture, share services at global level and outsource peripheral activities. Following this, a question was posed to the panel regarding the competencies in an employee that would become even more imperative in this day Mr. Madan Srinivasan from HCL technologies and age of globalization and economic uncertainty. was when asked to speak on governance structure In response to this, Mr Aquil Busrai stated that he said that gone are the days of HR being a what has become essential is the ability to be governance department or policing department, resilient in the face of change and adapt to the supporting Mr Aquil's point he said that HR now dynamic nature of the business world. Mr. P.V needs to adopt a facilitator model rather than any Ramanamurthy responded saying that cross governance model. He shared that these days cultural agility and the ability to think with a truly organizations need to follow much organized global mindset is something that is crucial to Knowledge Partner Delphique ‘08 HUMAN RESOURCES 9
CMYK HUMAN RESOURCES Globalizing Indian Companies: The HR Challenges success, particularly while working in a foreign This marked the end of a thought-provoking and location, and he also provided a real-life example to enlightening discussion with our eminent panelists illustrate his belief. Mr. Madan Srinivasan entered that has greatly broadened our knowledge base the discussion, stating that in his opinion, in the with respect to the issues that globalization has near future, employees would require 3 key posed to Indian companies, a topic that has only competencies – the ability to be politically savvy, so gained in relevance and importance in the current as to be capable of sensing the surrounding scenario. environment and take appropriate decisions, the ability to communicate bad news with sensitivity and diplomacy and the ability to build up a feeling of trust and transparency at the workplace. This was followed by the concluding question from the audience, regarding the compensation policies that are/will be followed in the industry, as the expatriation trend reverses, and more and more expatriates start looking towards India for employment. It was interesting to find out whether this reverse brain drain would result in foreign employees settling for pay scales that were below those they were accustomed to in their home countries or whether Indian companies would have INTRODUCTION differential scales for local and foreign employees. The intent of the research was to have a closer look In response, Mr. Aquil Busrai categorically stated at how the Indian companies are fare when they set that regardless of the economic situation we find up shops abroad. The research focuses on the HR ourselves in, companies will always primarily be challenges that the Globalizing Indian companies interested in recruiting and retaining the best talent. face. Specifically speaking the objectives of the As a result, individuals with the requisite skill sets research were who are able to deliver the goods, would always be in demand, and would be able to command their To identify å key HR challenges currently price, irrespective of their nationality. confronting globalizing Indian companies To identify å initiatives undertaken by India Inc. to battle these challenges Knowledge Partner 10 HUMAN RESOURCES Delphique ‘08
KYMC To identify å internationally practiced expatriate HR Ericsson which has a well laid out Recruitment policies to highlight possible improvement areas Protocol. Locally it employs Employee Referral for the globalizing Indian companies scheme and internal postings while globally it goes in for Regional HR offices and Regional METHODOLOGY: Consultants companies. Also, Intel has a mechanism wherein it tries to take advantage of The methodology adopted was local talent to help build a strong local management (i) Literature study - Secondary Research was team for future. done via journals like Emerald and EBSCO Amongst the Indian companies that we interviewed (ii) Primary Research – Herein in depth semi- Essar stood out in terms of having a selection structured interviews were conducted with the criteria to recruit employees depending on the management personnel of twenty Indian and ability of a person to get acclimatized to the Foreign MNCs environment as early as possible. (iii) Objective Questionnaire – This was constructed with a view to know the Employee Responses of one Indian and one Foreign MNC. FINDINGS: RECRUITMENT Herein the emerging trends that we saw indicated that more often than not, decisions on expatriate selection are usually taken by line managers who LEARNING AND DEVELOPMENT ignore the laid-down criteria espoused by the HR Our findings suggested the inclusion of aspects department. Preference is to draw from a restricted such as politics, religion, law, education, values, pool of candidates about whom they feel confident. attitudes, etc in the composition of an effective Also very few companies employ criteria like Expatriate Training Program. culture fit, previous global exposure, extraversion, stress tolerance level, etc. Amongst the Internationally accepted practices, we came across companies like GM that provides Amongst the internationally accepted recruitment 180 hours of pre-departure language training to the practices, the notable one was that of Sony Knowledge Partner Delphique ‘08 HUMAN RESOURCES 11
CMYK HUMAN RESOURCES Globalizing Indian Companies: The HR Challenges expatriates and their families. Then there is Baxter employee has to report to his Functional head that provides no training at the home country. Host (generally in India), and Administrative superior (in country handles all training needs. foreign location). At NTPC reporting is done to ED As regards the Reality Bytes, Aditya Birla Group consulting in India and there is a contract of 3 has Cross-culture training as a part its agenda in years. ABG Group Learning centre. There's a centre by the name of Gyanodaya through which training needs are addressed. Further NTPC has a training centre in Noida, PMI, where training of language (especially Arabic), International finance and management, etc are given. PERFORMANCE MANAGEMENT The focus areas that emerged herein were in relation to subsidiary managers tending to be assessed according to subsidiary performance. Also, the nature of the international monetary system and local accounting differences precludes an accurate measurement of results. Further Employees prefer parent-company evaluators believing that their future career progression may depend on how the evaluation data is utilized back at headquarters. The internationally accepted best practices were visible in companies like Samsung where there is a self-setting of the goals and then finalization by the host country nationals. Appraisal is biannual for COMPENSATION managerial purposes and annual for The major challenges that companies are facing developmental purposes. Further Baxter follows a relate to maintaining a similar compensation levels Matrix structure. for outgoing employees by making adjustments for As regards the companies we studied, KEC Purchasing Power Parity, Inflation and Currency International follows a Matrix structure wherein an Fluctuations and motivating employees to accept relocation for foreign assignments by providing Knowledge Partner 12 HUMAN RESOURCES Delphique ‘08
KYMC monetary and non monetary incentives to place a Globility policy, a Group wide Mobility employees. policy, which addresses traveling, relocation of family, support in getting jobs for spouse. KEC- The internationally accepted practices relate to Tax RPG provides for reimbursements for family travel Equalization so that the employees don't bear tax and accommodation depends on Negotiations. burden due to difference in tax rates and also not Further, Hindustan Zinc makes family foreign placing employees on foreign location's payroll, if expense reimbursement available only to unfavorable to employees. Allowing social security employees serving for greater than 4 years subject benefits to accrue was also a notable practice as in to negotiations. the case of Sony Ericsson. Amongst the Indian Companies, NTPC and KEC REPATRIATION provide foreign compensatory allowance of to Last but not the least, Repatriation poses itself to expatriate employees plus an allowance for home be a big challenge, especially with Brain gain passage. While Hindustan Zinc pays No foreign gaining importance. However, Apart from some allowance, it only adjusts differences in PPP and make shift plans in some of the companies, not inflation rate. many Indian companies that we interviewed had a FAMILY RELATED formal and clearly laid out repatriation plan. ALLOWANCES AND PERKS A notable internationally accepted best practice is that practiced by Citi Group, wherein there are Reasons such as - Nine of ten expatriate failures formal discussions between employees and home family-related, unhappy spouse major reason for country manager, days before employees foreign early return pointed to the gravity of handling this assignment is about to end, to discuss employee's issue properly. new role in home country. Parameters considered Some of the internationally accepted practices that while deciding upon new role consist of experience we came across were with regard to Education gained by employee on overseas assignment and Allowances; Insures employees' children receive availability of roles in home country. education equal to that at home, All in all we managed to touch upon the various moving and Orientation Allowances, Language & aspects that are a matter of consideration and Cultural Training, Weekend Travel Expenses deserve utmost importance when an Indian reimbursements for Employees and their families, company decides to further its prospects by setting etc up a shop abroad. The above, if duly addressed would go a long way in ensuring a smooth flow of Indian companies like Aditya Birla Group have in affairs for the globalizing Indian company. Knowledge Partner Delphique ‘08 HUMAN RESOURCES 13
Sponsor Knowledge Partner FINANCE
Developing Indian Debt Markets Delphique ‘08
CMYK Sponsor FINANCE Developing Indian Debt Markets PANEL SPEAKERS Subhomoy å Bhattacharjee, Deputy Executive Editor, The Financial Express Any pic å Jasmit Singh Chandhok, Dy. Executive Director, Learning Arc å Kaul, CGM Treasury, Punjab National Mr. Arun Bank å Bhalla, Treasurer, GE Capital Mr. Manoj å Bhatia, AGM (Finance), NTPC Sangeeta available to non-banks as Credit Information EXPERT OPINION Bureau India Limited (CIBIL) reports the defaults The research on the topic 'Development of Indian only for banks. Second is the absence of any debt markets' was very well appreciated by the stringent laws in India on bankruptcy enforcement panelists who suggested the presentation should and protection. Unlike the US where Chapter 11 be made to the regulators to set the way forward. and other laws ensure high degree of restitution The discussion began with a comparison of loans and that too before diminution of asset value, in against bonds and analyzing whether the present India corporate default does not come in the public system is sustainable. According to Mr. Arun Kaul, domain for up to 10 years. banks would prefer to give loans rather than Transparency in disclosures, diversity for issuers investing in bonds because of the direct contact as well as investors, and liquidity dependent on with the client in case of loans, as compared to market infrastructure and intent of institutions were communication through merchant bankers. Mr. identified as major criteria for development of debt Arun Kaul also threw light on how PNB invests market by the panel. Mr. Jasmit Singh Chandhok money in bonds, highlighting that it does not invest and Mr. Arun Kaul pointed out that retail investors in private sector bonds as there is no proper do not have enough incentive to invest in bond secondary market for trading. Two more problems markets where there is doubt about the pricing of were identified in case of institutional investment in bonds, legal issues are cumbersome, and it is corporate bonds. One, data on defaults is not difficult to withdraw money back from market. If at Knowledge Partner 14 FINANCE Delphique ‘08
KYMC all an exposure to bonds is required, much better price discovery is not efficient. Moreover, the options are available to them in the form of platform established by NSE is more of a reporting undervalued bank equity who in turn have their platform rather than a trading platform as two way investments in bonds of corporates. Hence, retail live quotes are not available. The restriction on investor would have to enter indirectly into this foreign investment is also a major factor in this non- market, which is in line with the worldwide trend of development if we try to benchmark with the majorly wholesale investors in bond market. markets abroad. A point noted by the panel was However, such an entry would be preferred as it is that there is a large contribution of foreign likely to lower the yields in the market. investment in development of Indian equity markets. Thereafter the discussion moved on to the role of credit rating agencies in development of bond markets. The panel was unanimous on the view that these agencies had failed to predict a lot of troublesome situations in the past and hence excessive reliance on credit rating agencies should be avoided. In the panel's view these agencies have good models for current situation but not the future, and a more sophisticated analysis is needed from their side. There was also a debate on the business model of credit rating agencies, but an important argument was the need to build accountability for such bodies by bringing in Next issue discussed was that whether due to its regulation. high dependence on Government bonds to finance Other major reasons for non-development of debt budgetary deficit, is it the Government that does markets were also discussed by the panel. In India, not want the development of corporate bond size of corporate is relatively smaller and they have market. It was concluded by the panel that the access to project loans and working capital loans attempt by Government is not deliberate, but it is such as cash credit from banks which lower their extra cautious to prevent scams. The demand for costs of borrowing to a large extent. In this regard, Government bonds mainly comes from banks that banks' operations are actually hindering the growth need it for their SLR requirements. of bond market in India. Institutional investors like Some subtle issues concerning the corporate bond EPFO and LIC holding their portfolios to maturity market were also touched upon by the panel. While leaves the market in an illiquid situation and hence the panel agreed when Mr. Manoj Bhalla pointed Knowledge Partner 15 Delphique ‘08 FINANCE
CMYK Sponsor FINANCE Developing Indian Debt Markets out that the bond, cash, and derivative market are Government securities market and corporate debt needed together for an integrated development, market. The corporate debt market can be further there were apprehensions regarding allowing of classified based on the type of issuer being a Public Credit Default Swaps for this development, Sector Undertaking (PSU) or a private company. especially after the recent financial turmoil. It was The Indian debt market is dominated by G-Sec also concluded that for any scope of a market for bonds with market capitalization of Rs. 13,18,419 municipal bonds, these organizations first need to as compared to corporate bond market put their houses in order. Mr. Arun Kaul pointed out capitalisation of only Rs. 68,074 crore at end the need to allow short selling in corporate bond December 2007. Hence, within the realm of market. development of Indian debt markets, our research The panel was finally able to identify removal of was directed towards the development of regulatory ambiguity, funding of stakeholders, and corporate bond market. improvement of corporate governance as immediate measures in the direction of development of corporate bond market. At the same time, the establishment of reporting platform and the application of uniform TDS for Corporate and Government bonds were stated as positive steps from the Government's side. Overall the discussion was a healthy one which brought out varied perspectives on what can bring about a marked change in Indian financial system. Queries raised by the students were aptly answered by the panel. INTRODUCTION Characteristics of developed Indian Debt market: Overview debt market For a market to be developed, presence of three Debt Market is the market where fixed income characteristics is very crucial: securities of various coupons, maturity, options and other features are issued and traded. The Liquidity: å For the market to be liquid; there is a Indian debt market has two segments, viz. need for a secondary market. There has to be enough number and type of instruments and Knowledge Partner 16 FINANCE Delphique ‘08
KYMC number of participants to have sufficient variety, roles was brought by making primary and inducing fast trades in the market. secondary trading a responsibility of SEBI while repo and reverse repo of debt being a responsibility åSafety: Other than enough types of instruments of RBI. Also, Corporate Bonds and Securitization with differing characteristics which could be used Advisory Committee (CoBoSAC) was set up under to reduce risk exposure, a key requirement for chairmanship of Dr. R.H. Patil to look into further safety is the minimization of counterparty risk. issues. åPresence of market maker: A market maker is From the issuer's perspective, the requirements required to induce trades in the market by quoting regarding continuous disclosures by the issuers two-way quotes. were rationalized; there was a reduction in Shut Other than these characteristics, other important Period to align corporate bonds with Government features for a developed market are efficiency of securities, a reduction in requirement of only one the market, low transaction costs, and availability credit rating agency instead of multiple ones, and of free public information. the requirement of investment grade rating of debt instrument removed. Moreover, Structural Past initiatives to develop Debt restrictions, such as those on maturity, put / call markets option, conversion etc. were removed, corporate debt instruments issued in de-mat form (and listed The Government in February 2006 accepted on recognised exchanges) were made exempt recommendations of the high level expert from TDS, and moderated SEBI Regulations were committee formed under Dr. R. H. Patil. These issued for Issue and Listing of Debt Securities in recommendations were implemented majorly by 2008. These regulations paved the way for one February 2007. The recommendations were aimed listing agreement for public and private issue at improving the market conditions for all irrespective of listed or unlisted company, and stakeholders- from issuers to investors, changes minimal disclosures for companies with listed were brought so as to improve the market equity. infrastructure and regulatory environment as well. Reporting platforms were set up by NSE, BSE, and FIMMDA, and trading platforms from BSE and NSE became operational. The trade settlement started happening via exchange or bilaterally. Standardization was brought for the Actual Day Count convention for new issues. From the regulatory viewpoint, a clear understanding of Knowledge Partner 17 Delphique ‘08 FINANCE
CMYK Sponsor FINANCE Developing Indian Debt Markets To make corporate bonds attractive for the investors, the reporting of OTC and exchange transactions was made mandatory, the tradeable lot was reduced to Rs. 1 lakh for all investors, and market information on secondary market trades was made available on SEBI website for price estimation purpose. Also, press release was made mandatory for issuers in the case of events like default of payment, failure to create charge on assets, or a revision of ratings, other than issuance of compliance reports in public domain by issuers being made mandatory. The listing agreements of debentures were also modified, so that ECS, Direct After obtaining a basic understanding of the Credit, NEFT, and RTGS were to be used for present condition of the debt market and the interest payments & redemption, and material associated issues, a benchmarking of Indian modification in structure of debentures without corporate bond market with US and European prior approval of stock exchange where it is listed corporate bond markets like Eurex was performed. was restricted. The relative standing of Indian corporate bond market and the characteristics lacking in the Indian RESEARCH APPROACH markets were discovered. The corporate debt market has several Investors in India prefer to invest in other fixed stakeholders and the expectations, needs, roles income securities like government bonds, and opinions of these stakeholders on this market Collateralized borrowing and lending obligation differ vastly. Hence, through the research an effort (CBLO) ,bank deposits, national savings was made to look at the corporate bond market certificates, postal savings etc as compared to from the perspective of all the stakeholders in the bonds. Hence it was imperative to compare these process and understand their concerns for not instruments as against corporate bonds. After participating in the corporate bond market. The first plotting the risk-return tradeoff for these step in the research was the reading of several instruments vis-a-vis corporate bonds, customer reports on development of Indian corporate bond preferences in fixed income securities and their market published by companies like Goldman investment needs were also determined. Sachs etc., other reports by SEBI, RBI etc., in addition to news and magazine articles. Finally, to obtain the ground-level picture, opinion was taken from all the stakeholders in the Indian Knowledge Partner 18 FINANCE Delphique ‘08
KYMC corporate bond debt market such as the issuers, At the same time, developed debt market provides investors, credit rating agencies, regulators and new fund raising avenues to the borrowers, who exchange. A questionnaire was designed for each otherwise raise capital through loans from banks or stakeholder, through which the stakeholders were equities generally. Loans in Indian currency and asked to identify the reasons hindering the equity are expensive sources of capital as development of the market and their compared to issue of bonds, and hence, recommendations for removing these barriers. companies can issue bonds to reduce their cost of They were also requested to do a critique on the capital. Further, interest rate of loans is not recommendations put forth by the students in the transparent; while bond prices are determined by research. Through this primary research, gaps in market forces introducing transparency in the the proposed suggestions by various working borrowing market. Other sources of borrowing like committees and the need of the market participants ECB's are not accessible to all companies were uncovered, which provide the justification for especially SME's making corporate bonds even slow pick-up of bond markets in spite of umpteen more important. development-focused initiatives and suggest Regulators prefer a sound debt market as it would directions for new policy initiatives. The collective reduce the asset liability mismatch of banks. It perspectives of different stakeholders presented would reduce the strain of banking system if through this research provide a holistic picture and corporates issue bonds instead of bank loans. This demarcate the reality from the blame-game being will also infuse liquidity in the market. Development played for long between the regulators, the issuers of credit derivative market is possible only after the and the investors for failure to develop corporate development of the underlying instrument i.e bond bond market. market. Payoffs of a developed debt Issues market The main reason hindering the development of A developed debt market is preferred by the corporate bond market is the lack of liquidity. It is investors, the issuers/borrowers and the regulators just like a chicken and egg problem. Issuers do not of an economy alike. For investors, a developed want to issue bonds because there are not enough debt markets provides opportunities to diversify buyers in the primary and secondary market. As their portfolio. During times of bearish equity issuers do not issue bonds, investors do not invest markets, corporate bonds with assured returns are in the market due to lack of good quality bonds. a very effective medium to mitigate risk. Another problem faced by issuers is excessive disclosures for new and successive issues. At the same time, developed debt market provides Knowledge Partner 19 Delphique ‘08 FINANCE
CMYK Sponsor FINANCE Developing Indian Debt Markets Retail Investors are not well educated about bond or the regulator should provide incentives to pricing and on the corporate bond market market makers. One of the incentives could be structure. The minimum market lot size for lower transaction cost. investing in corporate bond market is Rs. 1 lakh. However, å due to high bid-ask spread market This is a huge amount in comparison to minimum making is very expensive. Hence, repos in amount in equities or bank deposits. Also, the retail corporate bond market should be introduced to investors believe that since everybody is investing increase secondary market trading. in equity markets, it must be the best option- a testimony of a social proof phenomenon. As a The current å lot size of Rs. 1 lakh deters retail result, they are hesitant to invest in the debt investors. To tackle this, the market lot size markets. Information on live trading of corporate should be reduced to as low as Rs. 10000. bonds is not freely available on the internet. It is difficult å to get free public information about Institutional investors have no incentive to trade in bonds. People are not aware about government exchanges as their needs for corporate bonds is initiatives like indiabondwatch.com. it is met by the Over the counter (OTC) market. Banks imperative to educate the investors especially prefer to give loans as they are treated on cost the retail investors. basis in the balance sheet as compared to bonds There is å no benchmark to measure the which are valued on mark-to-market basis. performance of bonds. There should be a Moreover, the bankruptcy and default laws are not benchmark or a index for corporate bonds similar very stringent in India. The investor is exposed to to the US and the European market. credit risk and at the same time the market does not The main å investors in the bond market are have sufficient hedging instruments. institutional investors. So, a bond market For the regulators, the main concern is the lack of managed by consortium of institutions like Eurex development in the market despite the initiatives bond market will give the institutions to design a taken recently. Also, the investors are not aware of trading and settlement system as per their needs. the initiatives taken by the regulator or the exchange. Recommendations The corporate å bond market cannot develop without increasing liquidity in the market. In every market, the market makers are sources of liquidity. To enable market-making, the exchange Knowledge Partner 20 FINANCE Delphique ‘08
KYMC List of companies where executives were contacted for primary research Knowledge Partner 21 Delphique ‘08 FINANCE
Knowledge Partner MARKETING
Merchandising: Current practices in FMCG and what lies ahead Delphique ‘08
CMYK MARKETING Merchandising:Current practices in FMCG and what lies ahead PANEL SPEAKERS Mr. Davinder å Singh- Director, New Product Commercialization, CocaCola India Any pic å Mittal- Regional Sales Manager, ITC Mr.Vishal Adrain å Stray- Category Management Head, Hindustan Coca Cola Beverages Pvt Ltd. Sai Ramana å Ponugoti- Global High Frequency Stores Innovation Center Leader At Procter & Gamble PROF. A.P. ARORA –MDI Gurgaon å perceives & shops. The customer is willing to EXPERT OPINION spend more time inside a store to take back items The Marketing Research team, through primary of his preference. and secondary information initially presented their He said that before taking a decision the customer research which was appreciated by all the prefers to:- panelists present for the discussion. º the product. Touch and see Professor Arora started the discussion by telling about the drastic changes in the retailing sector º prices for that product across the Know all the over the last few decades. The shopkeeper and world. retailer were on the opposite side of the shop and º Should have complete information available shopper could not see what was inside the shop. regarding the features of a product. He also discussed that India is very different from Then the panelists gave their opinions pertaining to most other countries as we have the highest some of the issues:- number of shops and also highest shop density. So a change in retailing here can be regarded as a What would be the differences in kind and revolution that has taken place. Retailing in India is degree of merchandising employed according like an elephant that has become huge in size. The to sector? major change in the retailing has come about Mr. Vishal Mittal said that the company and retailer because of the change in the way customer should understand the difference between a Knowledge Partner 22 MARKETING Delphique ‘08
KYMC customer and a consumer. A shopper or a impact is least on prescription products such as customer tries to look for value in a product medicines and 25-30% on products such as whereas for a consumer the experience of trying chocolates and soft drinks. Visibility in general that product is important. He added that the buyer helps increase sales up to 25-30%. The is different from consumer and it is important to effectiveness of the medium is also important. target the buyer through merchandising. Mediums like POSM help increase sales by about 20-30%. Mr. Singh added that a retailer needs to meet the requirements of a customer by developing an He emphasized that the advertising and understanding of how the product will be merchandising may be different but the message consumed. He also said that different pictures and should be consistent. The customer should be able themes must be used for advertising and to recall the advertisement on seeing the merchandising. For example, Coca-Cola merchandising and the two should be in line with advertises for 300 ml bottle while it sells 2L bottle each other. also. The reason is that it targets youth during In case of high end retail stores, shopping advertising but the buyer is often the mother who is experience is very important. In a high end retail price conscious and prefers the larger pack. store the customer gets to see a 3-D view of the product whereas in a traditional store the products are so much stacked up that a customer can get only a 2-D view of the product. Mr. Davinder said that Coca-Cola manages the brand and is responsible for creating demand through marketing activities. On the other hand, HCCB is responsible for production, distribution and merchandising of the product. The soft drink industry, therefore, provides bottlers the opportunity for merchandising and handling point of purchase issues. Mr. Adrian said that by providing fridge, HCCB ensures that the consumer is more likely to drink the soft drink now rather than carry it along. This helps to push sales through merchandising. He Mr. Ponugoti said that the impact of said that Coca-Cola is looking to start selling in merchandising varies from product to product. The Knowledge Partner Delphique ‘08 MARKETING 23
CMYK MARKETING Merchandising:Current practices in FMCG and what lies ahead stores with 'Permanent Beverage Section’. What are the new horizons in the field of Visual Merchandising and its execution? Mr. Ponugoti disagreed on the use of roof for advertising. Mr. Adrian added that the line of vision of humans is between few feet above and below the eye level and hence it is futile to place anything above or below that. Mr. Vishal said that in case of products such as cigarettes where advertising is banned, POSM becomes all the more important. It is the only source of communication with the consumer. He added that the company used merchandising actively and aggressively for Bingo as it needed to å Visibility beat Lays, the market leader in snacks. It used rack å Freshness and rack header to display the product outside the å Availability shop. The purpose of rack header was to highlight the latest entries in that category. It's the responsibility of the merchandiser to take Mr. Ponugoti added that it is important to provide care of visibility and freshness. retailer with ready to display solutions such as Mr. Ponugoti added that the strategy needs to be Gillette rack. The rack makes it convenient for the very simple as the merchandiser and retailers are retailer and improves display also. He also generally not very well educated in India. The explained how P&G pushed the sales of Whisper design and implementation needs to be very by pushing it in front rack as the consumers were simple and straightforward. shy to ask for it otherwise. Therefore, it is one Mr. Davinder said that merchandise such as rack product where visibility matters a lot. and fridge is valued by all retailers. In case of these What can be the improved measures to products, the merchandiser and the retailer, both of gauge the merchandising efficiency and them benefit and it is easier to convince retailer for effectiveness? displaying these merchandises. It is important to convince the retailer in terms of profit/sales Mr. Vishal said that the basic strategy for increase by displaying the company's merchandising needs to ensure the following: merchandise. Knowledge Partner 24 MARKETING Delphique ‘08
KYMC Mr. Davinder said that in order to improve that tend to provide a great shopping experience to merchandising, the companies need to have a the shopper. separate team for merchandising and advertising Tier 2 or visible distribution: - These are the ones as the advertisers have a different way of thinking. which focus mainly on the visibility of the products. Coca-Cola has also implemented this strategy. He also said that in order to improve the efficiency it Tier 3 or Distribution stores:- These are stores becomes important for a company to convince the where products are just brought from the factory in retailer that he is going to loose his sales without a displayable format and kept in the stores. the products form that company i.e. having an At this point Mr. Vishal brought in the concept of upper edge over the retailer is very important for a permanent selling unit (PSU) which is especially company to have good visibility in a store. Instead used in the restrictive category. He also said that of taking permission from the retailer for space it is today it is important to focus on in-store important to make him realize the value adds that advertisement instead of creating a new connect the products of that company would do to his sales. with the customer as in-store advertisement could This would help a company gain an upper edge help a customer to recall the brand. Also the over its competitors. POSMs that are used for a particular product Mr. Ponugoti added that it is more efficient to use should be consistent across all the stores and merchandising that lasts long as there is execution should also be consistent with the advertisements costs associated with it. It is good to have POSM of the product so that a customer is able to easily that lasts 3-4 years compared to a few months. Mr. recall the product at the time of purchase. Vishal however added that the purpose of POSM The panelists also discussed the concepts of core varies from product to product. For a category like creative idea and core creative and how they are biscuits ITC would prefer to have an expensive related to the concept of merchandising. POSM whereas for a category like Hatke Jhatke The panelists later went on to discuss different the company may not prefer spending huge means of merchandising and issues related to it. amounts on the POSMs. Some companies use in house merchandising What are the new horizons in the field of while others use third party for the same purpose. Visual Merchandising and its execution? Sometimes there are issues such that the retailer In answer to this question Mr. Singh said that in promises to provide some space to the salesman. today's scenario stores could be divided into three However, when the merchandiser goes to the shop tiers:- the retailer disagrees. Another problem with using Tier1 or premium stores: - These are the ones internal merchandising is that it cannot be audited. However, in case of third party merchandisers, it is Knowledge Partner Delphique ‘08 MARKETING 25
CMYK MARKETING Merchandising:Current practices in FMCG and what lies ahead difficult to take any action even if it is known that the å To evaluate the strengths, weaknesses and execution is not proper. opportunities of various FMCG companies in the This marked the end of an enlightening discussion merchandising strategy. with our eminent panelists that greatly enhanced å To study the performance of merchandisers and our knowledge with respect to the issues that the difficulty in tracking the implementation and merchandising issues. benefits of merchandising. INTRODUCTION METHODOLOGY The intent of the research was understand the The methodology adopted was current practices that exist in the FMCG sector (a) Literature study - Secondary Research was especially in the unorganized sector and to study done via journals and various websites. the possible future trends related to visual merchandising. The main objectives of the (b) Primary Research –Primary research was done research were:- mainly by visiting FMCG stores and gathering data about the merchandising policies followed å pros and cons of merchandising were To identify by FMCG majors. discussed from the viewpoint of all stakeholders. å To identify key issues and concerns in FINDINGS merchandising were discussed next. STAKEHOLDERS: åthe performance of merchandisers and To study The major stakeholders in merchandising are the difficulty in tracking the implementation and classified as: benefits of merchandising. å Company å Distributor å Retailer å Buyer With Respect to the company the major players involved are the marketing division and the sales division. The major role of the marketing division is the designing of the communication strategy while the main role of the sales division is designing and Knowledge Partner 26 MARKETING Delphique ‘08
KYMC implementing the execution strategy. major players involved are distributor, sales force and merchandiser. The distributor is responsible The benefits sought by a company in doing for stocking and warehousing of merchandise. The merchandising are:- role of the sales force is handling the distribution å Communication and execution of the merchandise. The å Brand Building merchandisers are the third party who is the visual experts responsible for checking out the visibility of å Relationship building their products. With respect to the retailer the major players The benefits sought by the merchandiser are:- involved are owner of the shop and the shop worker. The shop owner is mainly concerned with å sales Increased issues related to modern and traditional retailing å and schemes Incentives whereas the main role of the shop worker relates to å Relationship execution and maintenance. å Relation and soft skills The benefits sought by a retailer are:- å benefits Monetary å kind Benefits in å benefits Intangible With respect to the buyer the major players involved are buyer, the influencer and the decision maker. The role of the buyer is to make the final purchase, the influencer is the one who influences the decision of the buyer with respect to the purchase and the decision maker decides various parameters related to the purchase. The benefits sought by a buyer are:- å Aids recall å buying process Facilitates MERCHANDISING EFFICIENCY: å Convenience and utility The merchandising efficiency can be categorized in to two types:- å With respect distributor and merchandising the Knowledge Partner Delphique ‘08 MARKETING 27
CMYK MARKETING Merchandising:Current practices in FMCG and what lies ahead å Communication efficiency å The ceilings of the stores can also be used for å efficiency Execution advertising as that space is mostly unutilized and can act as a good means for in-store advertising. Communication efficiency relates to visibility, attractiveness and message delivery. Visibility can åportion of the shelves which are mostly The front be brought about proper POSM placement left unutilized can be brought into use for whereas attractiveness can be brought about by a merchandising purposes. good POSM design. A good stock placement can All in all we managed to touch upon the various ensure good message delivery. aspects related to the current practices of Execution efficiency is again of two different types:- merchandising and also some of the future trends. å parameters Operation å Post-execution parameters The various operation parameters that are responsible of execution efficiency are:- å by the merchandiser in the outlet Time spent å Relationship of the merchandiser with the sales man å schemes and benefits given to the Payment retailers å Overcoming the space constraint FUTURE TRENDS: Some of the future and upcoming trends in merchandising are:- å and glass windows in the stores may The walls be utilized more efficiently for merchandising. There exist transparent windows wherein it is possible to use the outer side of the pane for advertising and from inside the window is just like any other transparent window. Knowledge Partner 28 MARKETING Delphique ‘08
Knowledge Partner OPERATIONS
Productivity or Supply Chain - Where should Indian Manufacturing firms focus? Delphique ‘08
CMYK OPERATIONS “Productivity or Supply Chain” - Where should Indian manufacturing firms focus more? PANEL SPEAKERS Mr. Venkata å Reddy, Vice President, Supply Chain, Spencer's Retail Ltd. Mr. Gaurav Gupta, Deloitte Touche Tohmatsu India å Private Limited. Mr. Alok å Srivastava, Managing Director, APAC Sourcing Solutions Ltd. Ms. Venu å Vashista, Department Manager, Logistics, P&G Mr. Girish å V Aivalli, Procurement head of Cargill India Pvt. Ltd supply chain system especially with the vendors EXPERT OPINION which would help in having a good SCM and After the student's research team presentation of increase in productivity. According to him, their research findings and posed few questions in productivity is impacted by structural issues and front of the panel, the moderator, Mr. Girish V lack of understanding about the benefits of Aivalli, took over the proceedings and moderated increased productivity. He advocated easing of the whole course of discussion between the norms for global firms to invest in India. He eminent panelists. supported supply chain over productivity because Mr. Venkat Reddy of Spencer's Retail spoke about a better supply chain mechanism automatically the high growth rate of Indian economy and its leads to a higher efficiency and higher productivity. huge potential because of the unmet demand. However, it is difficult to segregate the two. One of However, one of the problems faced by India is the the techniques to increase productivity could be scale of production. Citing his experiences at ASN i.e. advanced shipment notification. He PepsiCo India, he quoted problems of strongly believed in balancing short term and long implementing automation at a large scale. term goals. Speaking primarily from the view of retail industry To add dimensions from other sectors of the he gave stress to concentrate initially on improving manufacturing industry, Mr. Girish put up a Knowledge Partner 29 OPERATIONS Delphique ‘08
KYMC question that retail may be a special case; but the shortcomings of the Indian manufacturing sector. labour productivity plays a major role in most Capital scarcity is leading to problems in sectors of the manufacturing industry. implementing automation. He advocated government involvement in such situation. Poor Mr. Gaurav Gupta from Deloitte Touche Tohmatsu infrastructure and stringent labor laws are India Private Limited, who also mentored the practically hindering the productivity. He suggested student's panel, pushed the importance of the use of effective BoT (Build operate transfer) benchmarking. He believes that benchmarking system, women empowerment and respect for the becomes a critical factor for improving the system to increase productivity. He felt that the productivity in the long run especially when we are organizational structure of the firms should be competing with global firms. According to him, more transparent so that there is better co- awareness about the quantum of benefits that can ordination between the firm and their suppliers. He be derived by benchmarking is very important. He believed in replenishment model rather than laid stress on high investment in technology and forecasting and he also shared the 3C's i.e. co- automation and stated such steps very critical for operation, communication & co-ordination for the manufacturing industry as a whole. He too achieving long term gain in productivity. supported the fact that when we are in the initial face of growth i.e. 5- 10 years of operations it becomes very important to look for efficient supply chain mechanism as a toll for reducing costs. Later productivity plays a very important role in generating profits. Mr. Alok Shrivastava, MD of APAC Sourcing Solutions and former MD Ranbaxy and Honeywell, who has had vast international exposure, discussed the topic from a macroscopic point of view. He compared India and China and talked about the special economic zones (SEZ's). Even though India started early in constructing SEZ's, it was only when China started constructing huge SEZ's, India followed the suite. China focuses Ms. Venu Vashishtha shared her experiences from more on process innovation which is very low in P&G and focused on 2 critical factors for supply some of the Indian industries like chemicals. He chain management- people and better supplier quoted capital scarcity as one of the major collaboration. People which involve employees, Knowledge Partner 30 Delphique ‘08 OPERATIONS
CMYK OPERATIONS “Productivity or Supply Chain” - Where should Indian manufacturing firms focus more? vendors, transporters, customers etc. should base amongst the emerging economies develop a positive attitude. Also, better accounting for 70% of India's exports. The collaboration with people can be achieved by the incremental capital output ratio for the industry has organizational design and it would result in lower improved from 0.62 to 0.59. Mckinsey global has predicted the Indian consumer market to grow to the world's fifth largest by 2025, thus highlighting the bright prospects for products manufactured in India. The manufacturing growth rate, however, has decreased from 12.3% in 2006-07 to 8.8% in 2007-08. It is mainly due to poor infrastructure, bureaucratic red tape, restrictive labor laws, and outdated technology. Between 1990 and 2007, industry's contribution to the economy has remained stagnant, crawling from 25% to 27%. logistics cost. She said that to improve productivity education system needs to be made strong. She Key issues ailing the sector believed that employees learn in 1st year and start contributing in consecutive years. She strongly Supply Chain management: believed that it is not possible to isolate Against a world average share of 15-20% of the manufacturing from supply chain and therefore total manufacturing supply chain expenses there is great need for collaborative measures and contributed by the logistics component, India is an participative methods between the inbound underperformer with logistics contributing to 30% activities i.e. manufacturing and outbound activity of the supply chain costs. Two major issues as i.e. the supply chain. For achieving this she found from the research were suggested using the following measures: Poor inventory management: Currently, the total åTPM: Total Productivity management inventory holding costs account for about 20-40% åIWS: Integrated Work Systems of the inventory tied-up costs, which in turn, åCBD: Customer Business Development in place of account for 40% of the manufacturing GDP. This sales accounts to a figure of US dollars of 1.2 to 1.6 billion. The research showed that Indian firms åSBD: Suppliers Business Development particularly lack in areas like product design and on Indian Manufacturing Industry time delivery. Also, poor inventory management put a majority of the Indian players into a vicious The Indian manufacturing industry is the 4th Knowledge Partner 31 OPERATIONS Delphique ‘08
KYMC circle. Poor inventory management leads to poor å Create an information flow with business replenishment and poor supply leading to partners increased inventory holdings which in turn leads to å Employ Vendor Managed Inventory (VMI) late orders which drives up the logistics cost. This puts Indian players into precarious situations. å the inventory from forecast Decouple Lack of supplier collaboration: Indian supplier å Do inventory profiling collaboration at 9% overall seems pretty low å Reduce pilferage and improve physical handling compared to 36% for USA and 33% for Germany. å Clear visibility of warehousing Research done for different manufacturing industries show that supplier's involvement and Productivity: customer involvement is poor in most sectors of the industries. In automobiles, 40% respondents Studies have shown that a 1% increase in labour indicate low level of involvement, but 60% is productivity and a 1% decrease in both cost of equally divided in all the other 3 segments. capital & capital intensity will lead to an increase in Demand management (64%) and order fulfillment annual investment growth by about 14.5% (54%) have higher involvement but in case of inventory management the customer involvement (50%) is lower. In FMCG two-third respondents indicate low involvement for both supplier and customer. Customer is more involved in distribution management (60%) and product development (64%) and no involvement in import-export. In Consumer durables, either very low or very high participation was observed. In Engineering, 26% The current position of India with respect to China respondents indicate that there is high customer (graph shown above) in terms of manufacturing involvement in different processes. Also the Sector GDP in Rs at constant price per 1000 supplier involvement was found to be low in workers employed shows that both India and China demand management. were almost comparable back in 1980s whereas Recommendations now India stands at 44.95 compared to China at 351.7524 and USA way ahead at 4783.59. Two The following recommendations were proposed major issues found from research were: Lack of on the job employee training: Low skill levels were identified as major hindrance to Knowledge Partner Delphique ‘08 OPERATIONS 32
CMYK OPERATIONS “Productivity or Supply Chain” - Where should Indian manufacturing firms focus more? productivity. Findings of the research showed that employers, 'employability' refers to possession of only about 15% of manufacturing firms in India the skills, knowledge, attitudes and commercial provide on-the- job training, which raises their understanding that will enable new employee to productivity by a 25% above those that do not make productive contributions to organizational provide training. An estimated 80 million young objectives soon after commencing employment. workers need up to 2 years of training for even Therefore vocational institutes should do the basic skills. The possible reasons for firms to not following provide training were low levels of education, å Modifications to existing course content in limited resources for training, imperfect information consult with the employer. Introduce new courses with the employer about the benefits of training and and teaching methods and expand provision of poaching of trained workers. The possible effects opportunities for work experience of such deficiency were increasing business costs, job retention rates drops, less global investment å Embedding the desired skill sets within the and high relocation cost. courses Inefficient work environment for the labour: India is å'stand-alone' skill courses which are Offering infamous for its stringent labor laws that very much effectively 'bolted on' to traditional academic hamper the productivity. Some of the road blocks programs are å and strikes: According to their study” Disputes manufacturing sector accounted for the highest number of disputes (i.e. 63.60% of the total industrial disputes ) with a time lost of close to 14million man-days. åLabour Laws: Laws are again stringent Inflexible and inflexible. å Poor incentive structure. å Low expenditure on R&D (only 15% of total sales) Recommendations Following recommendations were suggested Enhancing employability: Rather than providing Knowledge Partner 33 OPERATIONS Delphique ‘08
KYMC New Institutional Arrangements: commitment, lower absenteeism and lower labour turnover. å end manpower through collaborative Create high efforts: By pooling resources of a large number of Collaboration with Labour Unions: institutions a critical mass can be built and high- In introducing all schemes relating to productivity, end manpower can b produced in sufficient such as, system of payment by results, individual numbers and group incentive schemes, norms of staffing å Embedding the desired skill sets within the and workload, changes in organisation and courses methods, rationalization, mechanization etc.; agreement with concerned unions must be å'stand-alone' skill courses which are Offering established. effectively 'bolted on' to traditional academic programs Effective Labour Legislation: New Institutional Arrangements: Firms should work with Government Organizations like FICCI to bring about labour reforms. å end manpower through collaborative Create high efforts: By pooling resources of a large number of institutions a critical mass can be built and high- end manpower can b produced in sufficient numbers å Skill development networks: For engagement of higher education institutions with industry and employers, sector-specific membership based networks could be created. These networks would also compile and collate high quality labour market intelligence and make it generally available to all for making informed decisions. Labourization: (Financial Participation of Labour) Distribution of Gains from Productivity: It means moving from the Master-Servant relationship through a better deal, joint The gains of productivity should be distributed consultation, joint management, auto- between shareholders, workers, consumers and management, and participation in ownership to plough-back effect. The formula evolved by NPC Worker's Ownership .It is a means of improving and Dandekar to allocate the gains of productivity motivation and productivity. It leads to greater between the shareholders and others was stated. Knowledge Partner Delphique ‘08 OPERATIONS 34
Knowledge Partner STRATEGY
Opportunities For The Auto Component Industry Delphique ‘08
CMYK STRATEGY Opportunity Areas and Challenges for Indian Automotive Component Players PANEL SPEAKERS Mr. Gaurav Gupta, Senior Manager, Deloitte å Mr. Puneet Kalra, Senior Principal, Monitor Group å Mr. Kiran å Deshmukh, Deputy MD, Sona Koyo Steering Systems Ltd. Mr. D. M. å Mani, General Manager (R & D), Subros Ltd. å Raina, Strategy Management Area, MDI Prof. S N the discussion by emphasizing the need for EXPERT OPINION initiatives at three levels – firm, industry and An insightful presentation by the research team government level to ensure that ambitious targets was followed by an invigorating panel discussion set for the Auto component sector are achieved. He which basically covered the following key points felt ACMA needs to play a major role to help the Further å initiatives that need to be taken at firm, government meet the expectations of the firms and industry and government level the industry as whole. Possible å impact of the launch of cars like the Tata According to Mr. Gaurav Gupta unlike the ITES Nano sector there is no cost advantage to India in the Auto components sector. In fact India stands at an Preparedness å of Indian Auto Component 8-10% cost disadvantage in comparison with Industry to handle the competition competing nations like China and Thailand. This Current å and Future trends that will impact the was mainly due to the poor infrastructure mainly Auto Component Industry roads and power supply and the high cost of capital. Micro interventions by the government in Firm, Industry and Government not just infrastructure but also areas like consumer finance, R&D will be required to ensure the vitality level initiatives of the industry. Prof. S N Raina, the panel moderator triggered off Mr. Deshmukh was optimistic that GOIs initiatives Knowledge Partner 35 STRATEGY Delphique ‘08
KYMC like the golden quadrilateral project will make the at the firm and industry level to make India a auto components supply chain efficient. Also the competitive destination for auto component boom in the sales of commercial vehicles due to manufacturing. these initiatives would ensure high growth rates for the auto components sales. He stressed on the The Nano Effect need for better infrastructure at ports and improved The panel was unanimous on the positive impact of connectivity between the auto clusters and ports. the recent launch of “Nano” by TATA Motors. Being an active member of ACMA he shed light on Besides ensuring global recognition for the Indian some of the initiatives taken by ACMA and GOI to Auto sector especially its design and engineering promote research & innovation e.g. tie-ups with capabilities it has also had a positive rub off on the MIT, IITs etc and establishment of NATRIP. auto component suppliers associated with the Mr. Puneet Kalra disagreed with the Indian concept Nano project. Under cost pressure the suppliers of auto clusters. He emphasized that mere co- had to focus on parts design, materials, existences of companies in close proximity cannot manufacturing process as well as the supply chain. be termed as a cluster. According to him The Nano experience would definitely help them government and ACMA need to ensure that factor cater to the needs of the global players more conditions around so called auto clusters in NCR, efficiently. Pune, Chennai improve substantially so that the firms become more competitive. He also expressed his concern with the high level fragmentation in the industry with 5000 players outside the ACMA fold. In his view the Indian firms need to specialise in specific component manufacturing e.g. bulbs, reflector systems, steerings etc instead of focusing on too many components and going forward how they manage their supply chain will ultimately impact their standing in the world market. Mr. Mani felt fragmentation is not a serious concern Preparedness of Indian Auto since major auto component players are few and Component Industry already under the aegis of ACMA. Coming from the R&D background he said that there was an urgent Prof. Raina cited an example of South Africa which need for competency mapping and gap analysis at in spite of having a small domestic market for auto Knowledge Partner Delphique ‘08 STRATEGY 36
CMYK STRATEGY Opportunity Areas and Challenges for Indian Automotive Component Players components has export figures comparable to that export figures. of India because of the high levels of specialisation Mr. Gaurav Gupta felt that the current economic that its firms had attained. He also expressed his slowdown as well as the declining auto sales in the concerns regarding the over dependence of Indian global markets presented a tremendous auto component suppliers on the US market and opportunity for India since there will be increased the extremely low investments in R&D as pressure on global players to outsource the auto compared to major competitor like China. component manufacturing in order to cut costs. Mr. Kalra agreed on this and cited the need for According to Mr. Deshmukh India is fast emerging identification of specific competencies of Indian as the hub for small cars so any shift towards small auto component industry and get disproportionate cars in the global auto market is a welcome change investments directed towards developing them. for us. He also felt that the export earnings of Indian According to Mr. Gupta Indian players need to auto component sector would get a boost with the hedge their risks and reduce their dependence on increase in the manufacturing and export of small US by tapping other markets like Europe, Asia cars from India by players like Maruti Suzuki, Pacific, Latin America and even Africa in the future. Hyundai, Renault-Nissan, GM etc. They also need to aggressively focus on cost reduction as well as quality improvement since countries like China posed a serious threat. Mr. Deshmukh too agreed that “quality” is increasingly becoming an order qualifier rather than order winner. He expressed his satisfaction with the steps taken by ACMA to guide the smaller players in scaling up their operations as well as improving the quality standards in the industry. Current and Future Trends Prof. Raina raised the issue of the slowdown in Mr. Gaurav Gupta added that India's emergence as auto sales as well as vehicles usage in US and EU the small car hub would also mean that Indian and the shift towards smaller vehicles from sedans players get a bigger chunk of the auto components and SUVs. He felt that such developments posed after market which offers higher margins for the tough challenges in the achievement of targets set manufacturers. for Indian auto component industry especially the The OEMs need the Tier 1 suppliers to be situated Knowledge Partner 37 STRATEGY Delphique ‘08
KYMC near shore and Tier 1 business extensively Industry has emerged as one of India’s fastest involves technology, R&D and large scale growing manufacturing sectors, growing at a investments. With improvements in the supply CAGR of around 27.2% in value terms between chain and increasing cost pressures on OEMs and 2002-03 and 2007-08. But the Industry is highly Tier 1 suppliers there will be increased activity in fragmented with around 5,000 companies in the the Tier 2 and 3 businesses. un-organized sector, accounting for 23% of the market contributing primarily to the replacement The increasing concerns over environmental market. The rest of the market is comprised of degradation and the subsequent emergence of around 400 players contributing to OE, Exports and stringent emission norms would lead to increased replacement market. pressures on auto component manufacturers to innovate according to Mr. Mani. The weight of the vehicle has a direct relation to the emissions so alternative materials like plastics would be increasingly used to cut down the weight of the auto parts. These pressures would also help improve the design and engineering capabilities of the auto component manufacturers as has been already observed in case of suppliers of Nano. The Research Introduction - Indian Automotive The Indian Auto component industry caters to most of the product segments as shown in the adjoining Component Industry figure: Indian Automotive Components sector is an interesting sector to study in the current economic context especially because this sectors future depends on the demand derived from the Automobile industry. In developed economies like US the demand for automobiles has tapered off after decades of fast paced growth, in fact negative growth is being reported for many categories of vehicles. The Indian Automotive Component Knowledge Partner Delphique ‘08 STRATEGY 38
CMYK STRATEGY Opportunity Areas and Challenges for Indian Automotive Component Players Demand Drivers – Industry Auto Components – OEM Composition Demand The Indian automotive component industry is The domestic OEM demand will continue to be a driven by the domestic automotive industry and the growth driver for the Indian auto component export demand from the global automotive industry. With the automotive market expecting a industry. robust growth over the next 5 years, automotive component demand from the OEM is expected to grow in tandem at a 7% CAGR till 2015 to $14 billion. In the past, the domestic OEM demand and the replacement market have been the predominant force behind the growth of the automobile component industry. Supply to the OEMs constitutes the major share of the Indian auto component market, at 59% of the total market followed by the replacement market. But since the Intensifying competition and reduced margins in the developed countries have forced automakers across the globe to look for low cost destinations, going forward this mix is expected to change significantly with exports growing at a faster rate The growth in OEM demand is expected to be than the domestic OEM demand and constituting fueled by a greater number of global OEM's setting about 53% of the total market. Knowledge Partner 39 STRATEGY Delphique ‘08
KYMC up base in India and launching of new vehicle Auto Components – Export models by existing OEMs. Passenger Cars and Utility Vehicle segments are the largest consumers Demand of OEM Auto components and given their rapid The Indian auto component industry derived growth rate till 2015, it is expected this segment approximately $4 billion in sales from the export would continue to remain the largest customer. market and has grown at a CAGR of 40% in the last five years. Going forward the demand from the Auto Components – Domestic export market is expected to be the biggest growth Replacement Market driver for the Indian auto component industry. It is estimated to reach $20-25 billion by 2016. The The Indian replacement market currently market composition of exports over the last decade constitutes 22% of the Indian Automotive has changed significantly. Currently, India exports Component Industry and is currently estimated to 75% of components to OEM/Tier 1 markets and the be about $4 billion. It is expected to grow at a remaining to the aftermarket players. CAGR of 5% till 2015 to reach over $5 billion. Value of Indian Automotive Component Industry – 2016 The average spend on replacement parts per vehicle is estimated to decrease across all vehicle segments due to advances in technology and reliability of original parts leading to slow growth in this segment. And as shown in the graphs, the Based on these drivers of demand of the Indian electrical and equipment components would be the Auto Component Industry, the industry is projected fastest growing product categories largely due to to reach a value of $ 35- 40 billion by 2016 as the increase in electrical parts in vehicles and due depicted in the graph above. to high wear and tear. Knowledge Partner Delphique ‘08 STRATEGY 40
CMYK STRATEGY Opportunity Areas and Challenges for Indian Automotive Component Players Outsourcing Trends to Low Cost innovations and production of major components/units of a vehicle, the rising costs Countries within the industry are pushing them to transfer The Global auto component industry is currently these responsibilities to their Tier 1/2 suppliers. To $1.2 trillion and is expected to grow to $1.65 trillion meet the demand of the OEM’s, auto component by 2016. It is estimated that by 2016, $700 Billion suppliers are increasingly moving up the value would be outsourced from LCCs chain, graduating from component specialist to system and module assemblers. Exemplifying this feature is the growth in supplier value addition, from 65% in 2002 to 78% in 2015, within the manufacturing process. An emerging trend in this regard is the changing roles and responsibilities of various suppliers across the spectrum of the value chain. Global Automotive Industry – Technological Trends Another emerging trend within the automotive industry, is the changing technological and India's export potential is derived by analyzing its innovative environment, impacting both OEM’s competitiveness across the following parameters and suppliers. in relation to other countries: How India's Industrial and Technology conditions would rank in relation to Other International Trends other S.E Asian Outsourcing destinations. Shift in consumer preferences from large vehicles å Compared to other Asian automotive component to smaller cars due to rising fuel prices manufacturers India's superiority clearly lies in its Engineering, Design and Quality capabilities. Shift towards å “greener”, more fuel-efficient vehicles leading to changes in technology e.g. Global Automotive Industry – hybrid cars, Alternative fuels etc Supply Chain Trends Escalating raw material prices – impact on quality å of raw materials and profit margins e.g. Traditionally OEM’s retained the profile of Increasing steel prices may result in the use of undertaking majority of the assembly, design, alternative metals like Aluminium Knowledge Partner 41 STRATEGY Delphique ‘08
KYMC Increased competition – along with relatively slow å Recommendations growth and high costs in mature markets – prompting automakers and their suppliers to In order to ensure that the Indian Auto Component increase presence in emerging countries like Sector manages to achieve the projected growth Brazil, Russia, India and China based on its study the research panel recommends that focussed actions need to be taken at three New alliances å and partnerships around levels i.e. Firm, Industry (by industry associations innovation and technology and also car buying like ACMA) and Government level. attributes changing from basic to enhanced features Firm Level The impact of WTO and FTA's to encourage trade å Increased investments in R&D å of auto components between countries at Strong focus on Product Development å favourable prices Improve å the engineering and manufacturing Indian Auto Component technology being used for production Industry – Competitiveness Increase å the use of Information Technology as a business enabler Drivers Industry Level å benchmarking Initiate initiatives with respect to the global auto component majors å consolidation of smaller players Facilitate å competitiveness evaluation Regular Evaluate å the educational requirements for the manpower and collaborate with universities and industrial training institutions Government Level å improvement of infrastructure Focus on å development of automotive clusters Facilitate å the availability of capital Enhance Knowledge Partner Delphique ‘08 STRATEGY 42
Sponsor Knowledge Partner INFORMATION MANAGEMENT
Empowering Businesses: Innovation in IT Strategies Delphique ‘08
CMYK Sponsor INFORMATION MANAGEMENT Empowering Businesses: Innovation In IT Strategies PANEL SPEAKERS å Baidya, Account Technology Specialist - Mr. Aloke Central Govt. and Healthcare of Microsoft Mr. Baba å Varansi, Head, Department of Innovation of CSC India Pvt. Ltd. Mr. Vaidya å Nathan, Global Innovation Leader of Cognizant å Sidana, Business Development Engineer Mr. Vikas (ESS) of HP Mr. Mahadeo Jaiswal, Professor, MDI Gurgaon å This means that companies need to access talent EXPERT OPINION wherever it is available. Hence the need for UC The research team presented their findings on key becomes all the more important. challenge areas for foreign companies and brought The panel also reasoned that revenues from server out several actionable items for the panel to sales have not reduced with the advent of discuss and opine upon. One of the most important virtualization. This is because even though question was the need for innovation in IT demand for servers has gone down, demand has industries. The panel was of the opinion that any grown for servers with large computing power barriers and constraints can be acceptable until which can be sold at a higher price. The panel also they become obstacles to growth. Then the need to believed that companies are moving away from challenge the status quo arises. When this need traditional 'hardware silos' (physical servers) to a arises, innovation is needed. pool of resources concept, in which resources can The panel was also of the view that the tough be assigned when required and returned to the environment created complicated situations and pool when their work is over. were cause for companies to rethink their The panel believed that virtualization caused strategies. The panel also believed that India as a complications in management of infrastructure as country is moving from a situation of labour with a heavy virtual server sprawl, it becomes arbitrage, which was once caused due to difficult to monitor each machine separately. The outsourcing but is now considered a hygiene factor, panel believed that with the ease of deployment, to a situation of intellectual arbitrage. Knowledge Partner 43 INFORMATION MANAGEMENT Delphique ‘08
KYMC virtual servers are created at a rapid rate and there Given below are some of the commonly expected is a need for unified infrastructure management deliverables of IT strategies in businesses today: and the need for some industry standards to be set. 1) TCO of Technology The panel believed that UC is a major enabler as it Between 1996 and 2006, the total cost of allowed people to communicate via different ownership for servers worldwide rose from US$98 mediums, e.g. to answer emails via phone, thereby billion to more than US$250 billion. The rising costs creating an anywhere office. However the panel did are projected to continue and are being driven, first believe that there must be some form of encryption and foremost, by server management and to ensure secure communication across different administration costs. The secondary driver behind devices. rising ownership costs for servers is the cost of Panel believed that demand for new data centre's power and cooling for data centers. Often the constitute 50% of the total IT budget. The panel power consumed by the cooling systems is the also believed the need to create Next Generation same as that consumed by the servers Data Centre (NGDC). NGDC is software which can themselves. Apart from all this, there is the issue of be used as a service in which SME's can borrow finding floor space for data centers and that too server and other resources from a host. This also adds to the cost. So with the cost of electricity and includes cloud computing. personnel rising, CIOs clearly have their work cut out for them when it comes to containing costs. The panel believed that convincing the customer on ROI of emerging technologies is a long sales 2) Business Agility And Speed process in which the client is studied in detail and a Agility is defined as the ability to respond rapidly to technology suited for its purpose is identified. events that occur in business. Speed is defined as Finally ,the panel was of the opinion that the ability to execute operational and strategic companies have to use IT strategies to create a objectives. In a Mckinsey Global survey among unique value proposition, deep business insights corporations in 2006, 90% respondents said agility and think in terms of value provided to the is very important to business and about 86% said organization rather than just a functional the same about Speed. To be agile and speedy, component. Business decisions have to be in a matter of minutes and hours rather than days and weeks. Key Deliverables Of IT Thus there is a high need to be more nimble and strategies flexible. These requirements are direct expectations from IT departments of today. Businesses have certain expectations and goals when implementing any kind of IT strategy. Knowledge Partner Delphique ‘08 INFORMATION MANAGEMENT 44
CMYK Sponsor INFORMATION MANAGEMENT Empowering Businesses: Innovation In IT Strategies 3) Employee Productivity Data Centre Virtualization Working in office cubicles leads to morale problems According to Moore's Law computing power as workers begin to feel confined in semi-private doubles every 18 months. While there are some "nests" with little contact with the outside world. computing applications with an insatiable appetite When worker morale is low, productivity also tends for computational resources (gaming, modern to suffer. There are other causes that affect desktop applications and high throughput server employee productivity such as increasing applications, to name a few), there are many depression, rising competition and poor work life applications whose computational demands have balance. Productivity in the US is a meager 1 not increased at the same rate as computing percent. It was the IT and communication hardware. It is not uncommon to see server revolution in 90s' that had caused the productivity utilization figures of less than 10 percent per levels to go up to 3%. physical server for these types of applications. Light weight web serving, DNS, VPN solutions, and low throughput databases are all examples of 4) Green IT computing workloads that do not place inordinate Corporations are growing more and more demands on modern server hardware. It seems environment conscious and are always on the somewhat wasteful to buy a new machine and use lookout for technologies that are environment so little of it. Using old machines isn't such a great friendly. Corporations are looking out for ways to solution, either, as they are often unreliable (and reduce their carbon footprint and any IT strategy difficult to get spare parts for), have high power which does this will be adapted by corporations requirements, and take up a lot of space. rapidly. Virtualization allows much more efficient utilization Based on these four factors, the group shortlisted of underlying hardware by combining several of several new and upcoming IT strategies such as these workloads on one server, while still allowing web-oriented architecture, social networking, the workloads to be isolated from one another as if cloud computing, virtualization, unified they were running on physically separate communication, etc. From these, the group chose computers. The servers continue to work two strategies which the group believes will be very independently as if working on native hardware. popular among organizations in the near future, This is called virtualization. It achieves this by given the fact that we are going through extremely forming a layer between the physical hardware and difficult times. These two IT strategies are data the operating system, creating a number of virtual center virtualization and unified communication. instances of the operating system. This means that each machine can be used to create several virtual servers, all running different applications. Knowledge Partner 45 INFORMATION MANAGEMENT Delphique ‘08
KYMC There are different domains of virtualization that Business Benefits of Virtualization come under the broad category of data centre 1. CAPEX Benefits virtualization namely Server virtualization Out of all three of the different types of virtualization discussed in this article, server virtualization is the type of virtualization most are familiar with. When people say "virtualization", they are usually referring to server virtualization. Storage virtualization Storage Virtualization is the pooling of physical storage from multiple network storage devices into what appears to be a single storage device that is managed from a central console. Storage virtualization is commonly used in a storage area network (SAN). The management of storage o Reducing Capital Spend on IT Hardware devices can be tedious and time-consuming. o According to a Forrester Research “The Storage virtualization helps the storage State of Enterprise Infrastructure in administrator perform the tasks of backup, Europe 2006”, nearly one-third of the total archiving, and recovery more easily, and in less IT budget is spent on enterprise hardware time, by disguising the actual complexity of the and maintenance that includes servers, SAN. PCs, and networking. In this component of Network virtualization Enterprise Hardware Spend, the share of Network virtualization is a method of combining the Servers is as high as 25%. available resources in a network by splitting up the o Server Hardware Consolidation ratios of available bandwidth into channels, each of which is 8:1 to 12:1 can be easily achieved leading independent from the others, and each of which to 70 – 80% CAPEX savings. can be assigned (or reassigned) to a particular o Server utilization is normally 10% and server or device in real time. Each channel is maximum goes up to 30%. So it makes independently secured. Every subscriber has financial prudence to run the non critical shared access to all the resources on the network from a single computer. Knowledge Partner Delphique ‘08 INFORMATION MANAGEMENT 46
CMYK Sponsor INFORMATION MANAGEMENT Empowering Businesses: Innovation In IT Strategies servers requirements on the same server previous virtual machine state so that server utilisation goes up to 60 – o A virtual server can be deployed in 70%. minutes, adding flexibility and speeding o Reducing Space Requirements your time to market – It could take upto four weeks to deploy a standalone o Software Licensing Costs server including time to order , build it , o Reducing cooling requirements test it and install the applications o Immediate Realization of benefits o Higher availability and less maintenance, to keep your business up and running 2. OPEX Benefits o Reducing carbon footprint o Reducing Power Costs – Due to both hardware and cooling systems o Improved IT Infrastructure Scalability o For every $1 spent on new server spend, o Increased Reliability through reduced $0.50 is spent on energy to power and cool downtime and faster disaster recovery it Unified Communication Today's business leaders understand they must respond rapidly to changing developments to meet customer demands and improve profitability. Business communications have become more complex, and despite investments in technology, such as instant messaging and mobile devices, companies still have difficulties contacting key decision-makers in a timely o Reducing Administrative Manpower manner. To maintain a competitive edge and Requirement grow profitably, companies need to respond more o Reduced Downtime (Disaster Recovery) quickly to their employees and customers and 3. Strategic Benefits must avoid communication obstructions. o Increased agility Gartner defines UC products (equipment, software and services) as those that enhance o Difficult upgrades and migrations can be individual, workgroup and organizational attempted, tested and rolled back to a Knowledge Partner 47 INFORMATION MANAGEMENT Delphique ‘08
KYMC productivity by enabling and facilitating the control, 2. Increased Employee productivity management, integration and use of multiple 3. Reduced travel expenses enterprise communication methods. According to Gartner, UC products achieve this through the 4. Time savings convergence and integration of communication o Easier messaging management channels (that is, media), networks, systems and o Easier accessibility business applications, as well as through the consolidation of the controls over them. UC o Greater co-worker accessibility products may be made up of a stand-alone product suite or may be a portfolio of integrated applications and platforms. Figure 3: Unified Communications Business Benefits Of UC 1. Increased Business agility o Real time collaborative decision making o Speedily resolve customer Issues o Increased incidence of 'First time resolution' for customers Knowledge Partner Delphique ‘08 INFORMATION MANAGEMENT 48
Credits Event Secretary Research Team Puneet Babail Finance Panel Senior Core Team Senior Research Team Dr. Sangam Singh Tanuj Mukhija Saurabh Goenka Depesh Kashyap Kamal Chopra Vanita Thareja Gaurav Parikh Nitin Chawla Nikhil Agarwal Sonam Chopra Rajandeep Singh Priyanka Gulati Samyak Jasani Ruchie Chaudhary Anubhav Jain Junior Research Team Rahul Bansal Avni Mehta Abhishek Jain Amey Kulkarni Junior Core Team Deepak Gupta Ravi Ranjan Sureet Goyal Sharath Rao Sudhanshu Garg Nipun Jain Shruti Nischal Human Resources Gaurav Verma Rohit Kumar Singh Rajkunwar Singh Senior Research Team Shreya Praajya Pandey Vivek Rathi Nidhi Grover Aditya Goyal Vishal Tekriwal Abhishek Kartik Krishnamoorthy Achina Sharma Ridhima khorana Juhi Lalchandani Sneha Shalini Heena Prazapati Junior Research Team Namita Gupta Priyanka Agarwal Nandan Nerurkar Kiera Carvalho
Credits(Continued) Information Management Panel Operations Panel Senior Research Team Senior Research Team Shrikant Vishwanathan Viraj Mehta Arnab Dutta Arnab De Amitesh Bajad Shaveta Goyal Saurabh Bhatia Gopal Kapoor Lokesh Jetty Manish Maheshwari Manisha Patel Junior Research Team Junior Research Team RVRK Abhishek Sharma Siddharth Mallya Vaibhav Agarwal Varun Malik Arpit Pandya Akshat Gupta Marketing Panel Strategy Panel Senior Research Team Senior Research Team Charuta Ambardekar Saurabh Jain Arun Ganesh Drishti Yadav Ankit Garg Swati Dalal Ram Sharma Prateek Agarwal Monil Chheda Ankit Taparia Vaibhav Mohan Mayur Soni Junior Research Team Junior Research Team Reeti Bhatia Parag Raheja Hitesh Parikh Mayank Agrawal Anurag R Ankur Mathur Purav Nikhil Parekh Ashwin PV
Partners Associate Co-Sponsors Sponsor Knowledge Partners Logistics Media Partners Partner
DELPHIQUE ‘08 National Management Convention www.mdi-delphique.com Management Development Institute, Gurgaon www.mdi.ac.in

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Compendium

  • 1.
    Management Development Institute Gurgaon DELPHIQUE ‘08 National Management Convention 8|9 November ‘08 Research Compendium Research Compendium Emerging Business Horizons: Opportunities For Indian Companies
  • 3.
    Table of Contents AboutMDI....................................................................... 5 About Delphique’08........................................................ 7 Human Research ........................................................... 8 Finance .......................................................................... 14 Marketing ....................................................................... 22 Operations...................................................................... 29 Strategy.......................................................................... 35 Information Management............................................... 43 Credits............................................................................ 49 Partners.......................................................................... 51
  • 5.
    About MDI Management DevelopmentInstitute, Gurgaon is a premier management school in India. Having been consistently ranked among the top 5 B-Schools in the country, today MDI envisions itself as a Global Business School featuring among the top 20 schools among the world. MDI has powerful global linkages with business schools in North America, Europe, South East Asia, and Australia. MDI was established in 1973 as an autonomous body by IFCI. Since its founding, the Institute has striven to meet the needs of the business world and the aspirations of its students and working managers. The result is an increasingly professional training with an international focus. MDI is strongly committed to creating, both at individual and organizational levels, cutting edge management capability through value-based education, action-centric research, best global practices, and value-added consulting. Thus MDI's Mission is to prepare global leaders who create, manage and effectively lead change across diverse organizations. MDI's focus is to sensitize graduates on ethical issues thereby developing strength of character. 5
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    About Delphique Delphique isthe event where the action between the students and the corporate world on the MDI campus is at its apex. Delphique is the annual National Management Convention of MDI where renowned people from the industry come for some stimulating discussions on current issues, across various business functions, with the students of MDI. The topics span across a wide array of management issues ranging from revival of Indian debt markets to the HR challenges being faced by the globalizing Indian companies. Delphique's uniqueness lies in its strong research focus. Students conduct a thorough research on the topics which are decided in consultation with the industry mentors. The research work is carried out under the guidance of both the industry as well as the faculty mentors. The exchange of ideas between the leaders of today and those of tomorrow and the intense brainstorming between young minds leads to some fresh perspectives. The team presents its work to a panel of industry speakers and the students during Delphique. Delphique 08' was centred around the theme: Emerging business horizons: Opportunities for Indian companies. In the wake of global markets crashing and world economies in doldrums, the above theme becomes quite relevant as there are several opportunities lined up for emerging countries like India. Continuing the tradition of constant innovation, Delphique '08 touched new heights with Knowledge Partners across all panels, i.e. Finance, Marketing, Strategy, Operations, Information Management and HR. Research Topics for Delphique ’08: • Finance: Developing Indian Debt Markets • Human Resource: Globalizing Indian Companies - HR Challenges • Information Management: Empowering Businesses - Innovation in IT strategies • Marketing: Merchandising - Current practices in FMCG and what lies ahead • Operations: Productivity or Supply Chain - Where should Indian Manufacturing firms focus? • Strategy: Opportunity Areas and Challenges for Indian automotive component players given the current market trends and a vision to become a $35-40 billion industry 7
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    Globalizing Indian Companies: TheHR Challenges Delphique ‘08
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    CMYK HUMAN RESOURCES Globalizing Indian Companies: The HR Challenges PANEL SPEAKERS å Busrai – Director, Human Resources, IBM Mr.Aquil India Ltd. å Srinivasan- Director, Transitions and Mr. Madan Employee Engagement at HCL Technologies Ltd. åRamanamurthy Vice President, Human Mr. P.V. Resources ,HCCB(Hindustan Coca Cola Beverages) å Jyotsna Bhatnagar - PGHR Chairperson Prof. (Dr) MDI, Gurgaon EXPERT OPINION HCCB(Hindustan Coca Cola Beverages) told the The HR Research team, through primary and audience that talent and not the employee moves secondary information initially presented their from one country to other. research which was appreciated by all the panelists present for the discussion. Director-HR of Transitions at HCL shared his personal experience. He was working in ICICI Mr. Aquil Bursai , stated that there is a total 180 Bank before joining HCL. He was doing a project of degrees shift from how expatriates are treated designing an expatriation policy for ICICI. For that earlier and nowadays. project, ICICI had hired Mercer as its consultant. Earlier, it was more like a lottery ticket. He told the audience that before sending Expatriates were showered with home salary and employees to overseas assignment, the company huge expatriation bonus. It was financially should be clear of its objective i.e. why the lucrative. In those times, as numbers of company is sending the employees to overseas opportunities were very less, the tag of assignments? The company can send the “Expatriates” had altogether different weightage. employees for the money or for the business or for But nowadays situation is being changing the development of that employee. When drastically. Employee goes abroad, the main issue with them is about their compensation. Company should also M r. P. V. Ramanamurthy VP-HR of consider hiring local talent. Knowledge Partner 8 HUMAN RESOURCES Delphique ‘08
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    KYMC Mr Aquil Busraisaid there are basically five governance model to retain employees because important questions that are to be addressed when the attrition is very high. He also shared some of the talking about governance structure for expatriates. engagement initiatives that are being followed in HCL technologies to retain talent. The regular Who decides to send? Why to send? How to select committee meets, town hall get together and micro and whom to select? And most importantly how to site ensures that expatriates remain in close touch communicate to employees? with the company plans and vision. Cultural In answer to next question why the employees sensitization workshops are being regularly should be send to foreign locations rather than conducted. hiring local, he said three main factors play Thus all the three panel' members felt that HR important role needs to adopt a facilitative governance model by It saves costs to the organization. It helps being aligning goals of employees to the goals of close to customer. Gives initial exposure to vast organization and build a truly competent sensitive talent pool back home and helps enhancing their global workforce. talent and upgrading the quality of workforce. The most important decision is to decide how to select employees. He opines that decision to select should be based entirely on skill competencies and potential rather than any Body Shop option. The companies must learn from global best HR practices. The companies should follow a structure in which they define their core business architecture, share services at global level and outsource peripheral activities. Following this, a question was posed to the panel regarding the competencies in an employee that would become even more imperative in this day Mr. Madan Srinivasan from HCL technologies and age of globalization and economic uncertainty. was when asked to speak on governance structure In response to this, Mr Aquil Busrai stated that he said that gone are the days of HR being a what has become essential is the ability to be governance department or policing department, resilient in the face of change and adapt to the supporting Mr Aquil's point he said that HR now dynamic nature of the business world. Mr. P.V needs to adopt a facilitator model rather than any Ramanamurthy responded saying that cross governance model. He shared that these days cultural agility and the ability to think with a truly organizations need to follow much organized global mindset is something that is crucial to Knowledge Partner Delphique ‘08 HUMAN RESOURCES 9
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    CMYK HUMAN RESOURCES Globalizing Indian Companies: The HR Challenges success, particularly while working in a foreign This marked the end of a thought-provoking and location, and he also provided a real-life example to enlightening discussion with our eminent panelists illustrate his belief. Mr. Madan Srinivasan entered that has greatly broadened our knowledge base the discussion, stating that in his opinion, in the with respect to the issues that globalization has near future, employees would require 3 key posed to Indian companies, a topic that has only competencies – the ability to be politically savvy, so gained in relevance and importance in the current as to be capable of sensing the surrounding scenario. environment and take appropriate decisions, the ability to communicate bad news with sensitivity and diplomacy and the ability to build up a feeling of trust and transparency at the workplace. This was followed by the concluding question from the audience, regarding the compensation policies that are/will be followed in the industry, as the expatriation trend reverses, and more and more expatriates start looking towards India for employment. It was interesting to find out whether this reverse brain drain would result in foreign employees settling for pay scales that were below those they were accustomed to in their home countries or whether Indian companies would have INTRODUCTION differential scales for local and foreign employees. The intent of the research was to have a closer look In response, Mr. Aquil Busrai categorically stated at how the Indian companies are fare when they set that regardless of the economic situation we find up shops abroad. The research focuses on the HR ourselves in, companies will always primarily be challenges that the Globalizing Indian companies interested in recruiting and retaining the best talent. face. Specifically speaking the objectives of the As a result, individuals with the requisite skill sets research were who are able to deliver the goods, would always be in demand, and would be able to command their To identify å key HR challenges currently price, irrespective of their nationality. confronting globalizing Indian companies To identify å initiatives undertaken by India Inc. to battle these challenges Knowledge Partner 10 HUMAN RESOURCES Delphique ‘08
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    KYMC To identify å internationally practiced expatriate HR Ericsson which has a well laid out Recruitment policies to highlight possible improvement areas Protocol. Locally it employs Employee Referral for the globalizing Indian companies scheme and internal postings while globally it goes in for Regional HR offices and Regional METHODOLOGY: Consultants companies. Also, Intel has a mechanism wherein it tries to take advantage of The methodology adopted was local talent to help build a strong local management (i) Literature study - Secondary Research was team for future. done via journals like Emerald and EBSCO Amongst the Indian companies that we interviewed (ii) Primary Research – Herein in depth semi- Essar stood out in terms of having a selection structured interviews were conducted with the criteria to recruit employees depending on the management personnel of twenty Indian and ability of a person to get acclimatized to the Foreign MNCs environment as early as possible. (iii) Objective Questionnaire – This was constructed with a view to know the Employee Responses of one Indian and one Foreign MNC. FINDINGS: RECRUITMENT Herein the emerging trends that we saw indicated that more often than not, decisions on expatriate selection are usually taken by line managers who LEARNING AND DEVELOPMENT ignore the laid-down criteria espoused by the HR Our findings suggested the inclusion of aspects department. Preference is to draw from a restricted such as politics, religion, law, education, values, pool of candidates about whom they feel confident. attitudes, etc in the composition of an effective Also very few companies employ criteria like Expatriate Training Program. culture fit, previous global exposure, extraversion, stress tolerance level, etc. Amongst the Internationally accepted practices, we came across companies like GM that provides Amongst the internationally accepted recruitment 180 hours of pre-departure language training to the practices, the notable one was that of Sony Knowledge Partner Delphique ‘08 HUMAN RESOURCES 11
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    CMYK HUMAN RESOURCES Globalizing Indian Companies: The HR Challenges expatriates and their families. Then there is Baxter employee has to report to his Functional head that provides no training at the home country. Host (generally in India), and Administrative superior (in country handles all training needs. foreign location). At NTPC reporting is done to ED As regards the Reality Bytes, Aditya Birla Group consulting in India and there is a contract of 3 has Cross-culture training as a part its agenda in years. ABG Group Learning centre. There's a centre by the name of Gyanodaya through which training needs are addressed. Further NTPC has a training centre in Noida, PMI, where training of language (especially Arabic), International finance and management, etc are given. PERFORMANCE MANAGEMENT The focus areas that emerged herein were in relation to subsidiary managers tending to be assessed according to subsidiary performance. Also, the nature of the international monetary system and local accounting differences precludes an accurate measurement of results. Further Employees prefer parent-company evaluators believing that their future career progression may depend on how the evaluation data is utilized back at headquarters. The internationally accepted best practices were visible in companies like Samsung where there is a self-setting of the goals and then finalization by the host country nationals. Appraisal is biannual for COMPENSATION managerial purposes and annual for The major challenges that companies are facing developmental purposes. Further Baxter follows a relate to maintaining a similar compensation levels Matrix structure. for outgoing employees by making adjustments for As regards the companies we studied, KEC Purchasing Power Parity, Inflation and Currency International follows a Matrix structure wherein an Fluctuations and motivating employees to accept relocation for foreign assignments by providing Knowledge Partner 12 HUMAN RESOURCES Delphique ‘08
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    KYMC monetary and nonmonetary incentives to place a Globility policy, a Group wide Mobility employees. policy, which addresses traveling, relocation of family, support in getting jobs for spouse. KEC- The internationally accepted practices relate to Tax RPG provides for reimbursements for family travel Equalization so that the employees don't bear tax and accommodation depends on Negotiations. burden due to difference in tax rates and also not Further, Hindustan Zinc makes family foreign placing employees on foreign location's payroll, if expense reimbursement available only to unfavorable to employees. Allowing social security employees serving for greater than 4 years subject benefits to accrue was also a notable practice as in to negotiations. the case of Sony Ericsson. Amongst the Indian Companies, NTPC and KEC REPATRIATION provide foreign compensatory allowance of to Last but not the least, Repatriation poses itself to expatriate employees plus an allowance for home be a big challenge, especially with Brain gain passage. While Hindustan Zinc pays No foreign gaining importance. However, Apart from some allowance, it only adjusts differences in PPP and make shift plans in some of the companies, not inflation rate. many Indian companies that we interviewed had a FAMILY RELATED formal and clearly laid out repatriation plan. ALLOWANCES AND PERKS A notable internationally accepted best practice is that practiced by Citi Group, wherein there are Reasons such as - Nine of ten expatriate failures formal discussions between employees and home family-related, unhappy spouse major reason for country manager, days before employees foreign early return pointed to the gravity of handling this assignment is about to end, to discuss employee's issue properly. new role in home country. Parameters considered Some of the internationally accepted practices that while deciding upon new role consist of experience we came across were with regard to Education gained by employee on overseas assignment and Allowances; Insures employees' children receive availability of roles in home country. education equal to that at home, All in all we managed to touch upon the various moving and Orientation Allowances, Language & aspects that are a matter of consideration and Cultural Training, Weekend Travel Expenses deserve utmost importance when an Indian reimbursements for Employees and their families, company decides to further its prospects by setting etc up a shop abroad. The above, if duly addressed would go a long way in ensuring a smooth flow of Indian companies like Aditya Birla Group have in affairs for the globalizing Indian company. Knowledge Partner Delphique ‘08 HUMAN RESOURCES 13
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    Developing Indian DebtMarkets Delphique ‘08
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    CMYK Sponsor FINANCE Developing Indian Debt Markets PANEL SPEAKERS Subhomoy å Bhattacharjee, Deputy Executive Editor, The Financial Express Any pic å Jasmit Singh Chandhok, Dy. Executive Director, Learning Arc å Kaul, CGM Treasury, Punjab National Mr. Arun Bank å Bhalla, Treasurer, GE Capital Mr. Manoj å Bhatia, AGM (Finance), NTPC Sangeeta available to non-banks as Credit Information EXPERT OPINION Bureau India Limited (CIBIL) reports the defaults The research on the topic 'Development of Indian only for banks. Second is the absence of any debt markets' was very well appreciated by the stringent laws in India on bankruptcy enforcement panelists who suggested the presentation should and protection. Unlike the US where Chapter 11 be made to the regulators to set the way forward. and other laws ensure high degree of restitution The discussion began with a comparison of loans and that too before diminution of asset value, in against bonds and analyzing whether the present India corporate default does not come in the public system is sustainable. According to Mr. Arun Kaul, domain for up to 10 years. banks would prefer to give loans rather than Transparency in disclosures, diversity for issuers investing in bonds because of the direct contact as well as investors, and liquidity dependent on with the client in case of loans, as compared to market infrastructure and intent of institutions were communication through merchant bankers. Mr. identified as major criteria for development of debt Arun Kaul also threw light on how PNB invests market by the panel. Mr. Jasmit Singh Chandhok money in bonds, highlighting that it does not invest and Mr. Arun Kaul pointed out that retail investors in private sector bonds as there is no proper do not have enough incentive to invest in bond secondary market for trading. Two more problems markets where there is doubt about the pricing of were identified in case of institutional investment in bonds, legal issues are cumbersome, and it is corporate bonds. One, data on defaults is not difficult to withdraw money back from market. If at Knowledge Partner 14 FINANCE Delphique ‘08
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    KYMC all an exposureto bonds is required, much better price discovery is not efficient. Moreover, the options are available to them in the form of platform established by NSE is more of a reporting undervalued bank equity who in turn have their platform rather than a trading platform as two way investments in bonds of corporates. Hence, retail live quotes are not available. The restriction on investor would have to enter indirectly into this foreign investment is also a major factor in this non- market, which is in line with the worldwide trend of development if we try to benchmark with the majorly wholesale investors in bond market. markets abroad. A point noted by the panel was However, such an entry would be preferred as it is that there is a large contribution of foreign likely to lower the yields in the market. investment in development of Indian equity markets. Thereafter the discussion moved on to the role of credit rating agencies in development of bond markets. The panel was unanimous on the view that these agencies had failed to predict a lot of troublesome situations in the past and hence excessive reliance on credit rating agencies should be avoided. In the panel's view these agencies have good models for current situation but not the future, and a more sophisticated analysis is needed from their side. There was also a debate on the business model of credit rating agencies, but an important argument was the need to build accountability for such bodies by bringing in Next issue discussed was that whether due to its regulation. high dependence on Government bonds to finance Other major reasons for non-development of debt budgetary deficit, is it the Government that does markets were also discussed by the panel. In India, not want the development of corporate bond size of corporate is relatively smaller and they have market. It was concluded by the panel that the access to project loans and working capital loans attempt by Government is not deliberate, but it is such as cash credit from banks which lower their extra cautious to prevent scams. The demand for costs of borrowing to a large extent. In this regard, Government bonds mainly comes from banks that banks' operations are actually hindering the growth need it for their SLR requirements. of bond market in India. Institutional investors like Some subtle issues concerning the corporate bond EPFO and LIC holding their portfolios to maturity market were also touched upon by the panel. While leaves the market in an illiquid situation and hence the panel agreed when Mr. Manoj Bhalla pointed Knowledge Partner 15 Delphique ‘08 FINANCE
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    CMYK Sponsor FINANCE Developing Indian Debt Markets out that the bond, cash, and derivative market are Government securities market and corporate debt needed together for an integrated development, market. The corporate debt market can be further there were apprehensions regarding allowing of classified based on the type of issuer being a Public Credit Default Swaps for this development, Sector Undertaking (PSU) or a private company. especially after the recent financial turmoil. It was The Indian debt market is dominated by G-Sec also concluded that for any scope of a market for bonds with market capitalization of Rs. 13,18,419 municipal bonds, these organizations first need to as compared to corporate bond market put their houses in order. Mr. Arun Kaul pointed out capitalisation of only Rs. 68,074 crore at end the need to allow short selling in corporate bond December 2007. Hence, within the realm of market. development of Indian debt markets, our research The panel was finally able to identify removal of was directed towards the development of regulatory ambiguity, funding of stakeholders, and corporate bond market. improvement of corporate governance as immediate measures in the direction of development of corporate bond market. At the same time, the establishment of reporting platform and the application of uniform TDS for Corporate and Government bonds were stated as positive steps from the Government's side. Overall the discussion was a healthy one which brought out varied perspectives on what can bring about a marked change in Indian financial system. Queries raised by the students were aptly answered by the panel. INTRODUCTION Characteristics of developed Indian Debt market: Overview debt market For a market to be developed, presence of three Debt Market is the market where fixed income characteristics is very crucial: securities of various coupons, maturity, options and other features are issued and traded. The Liquidity: å For the market to be liquid; there is a Indian debt market has two segments, viz. need for a secondary market. There has to be enough number and type of instruments and Knowledge Partner 16 FINANCE Delphique ‘08
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    KYMC number ofparticipants to have sufficient variety, roles was brought by making primary and inducing fast trades in the market. secondary trading a responsibility of SEBI while repo and reverse repo of debt being a responsibility åSafety: Other than enough types of instruments of RBI. Also, Corporate Bonds and Securitization with differing characteristics which could be used Advisory Committee (CoBoSAC) was set up under to reduce risk exposure, a key requirement for chairmanship of Dr. R.H. Patil to look into further safety is the minimization of counterparty risk. issues. åPresence of market maker: A market maker is From the issuer's perspective, the requirements required to induce trades in the market by quoting regarding continuous disclosures by the issuers two-way quotes. were rationalized; there was a reduction in Shut Other than these characteristics, other important Period to align corporate bonds with Government features for a developed market are efficiency of securities, a reduction in requirement of only one the market, low transaction costs, and availability credit rating agency instead of multiple ones, and of free public information. the requirement of investment grade rating of debt instrument removed. Moreover, Structural Past initiatives to develop Debt restrictions, such as those on maturity, put / call markets option, conversion etc. were removed, corporate debt instruments issued in de-mat form (and listed The Government in February 2006 accepted on recognised exchanges) were made exempt recommendations of the high level expert from TDS, and moderated SEBI Regulations were committee formed under Dr. R. H. Patil. These issued for Issue and Listing of Debt Securities in recommendations were implemented majorly by 2008. These regulations paved the way for one February 2007. The recommendations were aimed listing agreement for public and private issue at improving the market conditions for all irrespective of listed or unlisted company, and stakeholders- from issuers to investors, changes minimal disclosures for companies with listed were brought so as to improve the market equity. infrastructure and regulatory environment as well. Reporting platforms were set up by NSE, BSE, and FIMMDA, and trading platforms from BSE and NSE became operational. The trade settlement started happening via exchange or bilaterally. Standardization was brought for the Actual Day Count convention for new issues. From the regulatory viewpoint, a clear understanding of Knowledge Partner 17 Delphique ‘08 FINANCE
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    CMYK Sponsor FINANCE Developing Indian Debt Markets To make corporate bonds attractive for the investors, the reporting of OTC and exchange transactions was made mandatory, the tradeable lot was reduced to Rs. 1 lakh for all investors, and market information on secondary market trades was made available on SEBI website for price estimation purpose. Also, press release was made mandatory for issuers in the case of events like default of payment, failure to create charge on assets, or a revision of ratings, other than issuance of compliance reports in public domain by issuers being made mandatory. The listing agreements of debentures were also modified, so that ECS, Direct After obtaining a basic understanding of the Credit, NEFT, and RTGS were to be used for present condition of the debt market and the interest payments & redemption, and material associated issues, a benchmarking of Indian modification in structure of debentures without corporate bond market with US and European prior approval of stock exchange where it is listed corporate bond markets like Eurex was performed. was restricted. The relative standing of Indian corporate bond market and the characteristics lacking in the Indian RESEARCH APPROACH markets were discovered. The corporate debt market has several Investors in India prefer to invest in other fixed stakeholders and the expectations, needs, roles income securities like government bonds, and opinions of these stakeholders on this market Collateralized borrowing and lending obligation differ vastly. Hence, through the research an effort (CBLO) ,bank deposits, national savings was made to look at the corporate bond market certificates, postal savings etc as compared to from the perspective of all the stakeholders in the bonds. Hence it was imperative to compare these process and understand their concerns for not instruments as against corporate bonds. After participating in the corporate bond market. The first plotting the risk-return tradeoff for these step in the research was the reading of several instruments vis-a-vis corporate bonds, customer reports on development of Indian corporate bond preferences in fixed income securities and their market published by companies like Goldman investment needs were also determined. Sachs etc., other reports by SEBI, RBI etc., in addition to news and magazine articles. Finally, to obtain the ground-level picture, opinion was taken from all the stakeholders in the Indian Knowledge Partner 18 FINANCE Delphique ‘08
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    KYMC corporate bond debtmarket such as the issuers, At the same time, developed debt market provides investors, credit rating agencies, regulators and new fund raising avenues to the borrowers, who exchange. A questionnaire was designed for each otherwise raise capital through loans from banks or stakeholder, through which the stakeholders were equities generally. Loans in Indian currency and asked to identify the reasons hindering the equity are expensive sources of capital as development of the market and their compared to issue of bonds, and hence, recommendations for removing these barriers. companies can issue bonds to reduce their cost of They were also requested to do a critique on the capital. Further, interest rate of loans is not recommendations put forth by the students in the transparent; while bond prices are determined by research. Through this primary research, gaps in market forces introducing transparency in the the proposed suggestions by various working borrowing market. Other sources of borrowing like committees and the need of the market participants ECB's are not accessible to all companies were uncovered, which provide the justification for especially SME's making corporate bonds even slow pick-up of bond markets in spite of umpteen more important. development-focused initiatives and suggest Regulators prefer a sound debt market as it would directions for new policy initiatives. The collective reduce the asset liability mismatch of banks. It perspectives of different stakeholders presented would reduce the strain of banking system if through this research provide a holistic picture and corporates issue bonds instead of bank loans. This demarcate the reality from the blame-game being will also infuse liquidity in the market. Development played for long between the regulators, the issuers of credit derivative market is possible only after the and the investors for failure to develop corporate development of the underlying instrument i.e bond bond market. market. Payoffs of a developed debt Issues market The main reason hindering the development of A developed debt market is preferred by the corporate bond market is the lack of liquidity. It is investors, the issuers/borrowers and the regulators just like a chicken and egg problem. Issuers do not of an economy alike. For investors, a developed want to issue bonds because there are not enough debt markets provides opportunities to diversify buyers in the primary and secondary market. As their portfolio. During times of bearish equity issuers do not issue bonds, investors do not invest markets, corporate bonds with assured returns are in the market due to lack of good quality bonds. a very effective medium to mitigate risk. Another problem faced by issuers is excessive disclosures for new and successive issues. At the same time, developed debt market provides Knowledge Partner 19 Delphique ‘08 FINANCE
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    CMYK Sponsor FINANCE Developing Indian Debt Markets Retail Investors are not well educated about bond or the regulator should provide incentives to pricing and on the corporate bond market market makers. One of the incentives could be structure. The minimum market lot size for lower transaction cost. investing in corporate bond market is Rs. 1 lakh. However, å due to high bid-ask spread market This is a huge amount in comparison to minimum making is very expensive. Hence, repos in amount in equities or bank deposits. Also, the retail corporate bond market should be introduced to investors believe that since everybody is investing increase secondary market trading. in equity markets, it must be the best option- a testimony of a social proof phenomenon. As a The current å lot size of Rs. 1 lakh deters retail result, they are hesitant to invest in the debt investors. To tackle this, the market lot size markets. Information on live trading of corporate should be reduced to as low as Rs. 10000. bonds is not freely available on the internet. It is difficult å to get free public information about Institutional investors have no incentive to trade in bonds. People are not aware about government exchanges as their needs for corporate bonds is initiatives like indiabondwatch.com. it is met by the Over the counter (OTC) market. Banks imperative to educate the investors especially prefer to give loans as they are treated on cost the retail investors. basis in the balance sheet as compared to bonds There is å no benchmark to measure the which are valued on mark-to-market basis. performance of bonds. There should be a Moreover, the bankruptcy and default laws are not benchmark or a index for corporate bonds similar very stringent in India. The investor is exposed to to the US and the European market. credit risk and at the same time the market does not The main å investors in the bond market are have sufficient hedging instruments. institutional investors. So, a bond market For the regulators, the main concern is the lack of managed by consortium of institutions like Eurex development in the market despite the initiatives bond market will give the institutions to design a taken recently. Also, the investors are not aware of trading and settlement system as per their needs. the initiatives taken by the regulator or the exchange. Recommendations The corporate å bond market cannot develop without increasing liquidity in the market. In every market, the market makers are sources of liquidity. To enable market-making, the exchange Knowledge Partner 20 FINANCE Delphique ‘08
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    KYMC List of companieswhere executives were contacted for primary research Knowledge Partner 21 Delphique ‘08 FINANCE
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    Merchandising: Current practices inFMCG and what lies ahead Delphique ‘08
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    CMYK MARKETING Merchandising:Current practices in FMCG and what lies ahead PANEL SPEAKERS Mr. Davinder å Singh- Director, New Product Commercialization, CocaCola India Any pic å Mittal- Regional Sales Manager, ITC Mr.Vishal Adrain å Stray- Category Management Head, Hindustan Coca Cola Beverages Pvt Ltd. Sai Ramana å Ponugoti- Global High Frequency Stores Innovation Center Leader At Procter & Gamble PROF. A.P. ARORA –MDI Gurgaon å perceives & shops. The customer is willing to EXPERT OPINION spend more time inside a store to take back items The Marketing Research team, through primary of his preference. and secondary information initially presented their He said that before taking a decision the customer research which was appreciated by all the prefers to:- panelists present for the discussion. º the product. Touch and see Professor Arora started the discussion by telling about the drastic changes in the retailing sector º prices for that product across the Know all the over the last few decades. The shopkeeper and world. retailer were on the opposite side of the shop and º Should have complete information available shopper could not see what was inside the shop. regarding the features of a product. He also discussed that India is very different from Then the panelists gave their opinions pertaining to most other countries as we have the highest some of the issues:- number of shops and also highest shop density. So a change in retailing here can be regarded as a What would be the differences in kind and revolution that has taken place. Retailing in India is degree of merchandising employed according like an elephant that has become huge in size. The to sector? major change in the retailing has come about Mr. Vishal Mittal said that the company and retailer because of the change in the way customer should understand the difference between a Knowledge Partner 22 MARKETING Delphique ‘08
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    KYMC customer and aconsumer. A shopper or a impact is least on prescription products such as customer tries to look for value in a product medicines and 25-30% on products such as whereas for a consumer the experience of trying chocolates and soft drinks. Visibility in general that product is important. He added that the buyer helps increase sales up to 25-30%. The is different from consumer and it is important to effectiveness of the medium is also important. target the buyer through merchandising. Mediums like POSM help increase sales by about 20-30%. Mr. Singh added that a retailer needs to meet the requirements of a customer by developing an He emphasized that the advertising and understanding of how the product will be merchandising may be different but the message consumed. He also said that different pictures and should be consistent. The customer should be able themes must be used for advertising and to recall the advertisement on seeing the merchandising. For example, Coca-Cola merchandising and the two should be in line with advertises for 300 ml bottle while it sells 2L bottle each other. also. The reason is that it targets youth during In case of high end retail stores, shopping advertising but the buyer is often the mother who is experience is very important. In a high end retail price conscious and prefers the larger pack. store the customer gets to see a 3-D view of the product whereas in a traditional store the products are so much stacked up that a customer can get only a 2-D view of the product. Mr. Davinder said that Coca-Cola manages the brand and is responsible for creating demand through marketing activities. On the other hand, HCCB is responsible for production, distribution and merchandising of the product. The soft drink industry, therefore, provides bottlers the opportunity for merchandising and handling point of purchase issues. Mr. Adrian said that by providing fridge, HCCB ensures that the consumer is more likely to drink the soft drink now rather than carry it along. This helps to push sales through merchandising. He Mr. Ponugoti said that the impact of said that Coca-Cola is looking to start selling in merchandising varies from product to product. The Knowledge Partner Delphique ‘08 MARKETING 23
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    CMYK MARKETING Merchandising:Current practices in FMCG and what lies ahead stores with 'Permanent Beverage Section’. What are the new horizons in the field of Visual Merchandising and its execution? Mr. Ponugoti disagreed on the use of roof for advertising. Mr. Adrian added that the line of vision of humans is between few feet above and below the eye level and hence it is futile to place anything above or below that. Mr. Vishal said that in case of products such as cigarettes where advertising is banned, POSM becomes all the more important. It is the only source of communication with the consumer. He added that the company used merchandising actively and aggressively for Bingo as it needed to å Visibility beat Lays, the market leader in snacks. It used rack å Freshness and rack header to display the product outside the å Availability shop. The purpose of rack header was to highlight the latest entries in that category. It's the responsibility of the merchandiser to take Mr. Ponugoti added that it is important to provide care of visibility and freshness. retailer with ready to display solutions such as Mr. Ponugoti added that the strategy needs to be Gillette rack. The rack makes it convenient for the very simple as the merchandiser and retailers are retailer and improves display also. He also generally not very well educated in India. The explained how P&G pushed the sales of Whisper design and implementation needs to be very by pushing it in front rack as the consumers were simple and straightforward. shy to ask for it otherwise. Therefore, it is one Mr. Davinder said that merchandise such as rack product where visibility matters a lot. and fridge is valued by all retailers. In case of these What can be the improved measures to products, the merchandiser and the retailer, both of gauge the merchandising efficiency and them benefit and it is easier to convince retailer for effectiveness? displaying these merchandises. It is important to convince the retailer in terms of profit/sales Mr. Vishal said that the basic strategy for increase by displaying the company's merchandising needs to ensure the following: merchandise. Knowledge Partner 24 MARKETING Delphique ‘08
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    KYMC Mr. Davinder saidthat in order to improve that tend to provide a great shopping experience to merchandising, the companies need to have a the shopper. separate team for merchandising and advertising Tier 2 or visible distribution: - These are the ones as the advertisers have a different way of thinking. which focus mainly on the visibility of the products. Coca-Cola has also implemented this strategy. He also said that in order to improve the efficiency it Tier 3 or Distribution stores:- These are stores becomes important for a company to convince the where products are just brought from the factory in retailer that he is going to loose his sales without a displayable format and kept in the stores. the products form that company i.e. having an At this point Mr. Vishal brought in the concept of upper edge over the retailer is very important for a permanent selling unit (PSU) which is especially company to have good visibility in a store. Instead used in the restrictive category. He also said that of taking permission from the retailer for space it is today it is important to focus on in-store important to make him realize the value adds that advertisement instead of creating a new connect the products of that company would do to his sales. with the customer as in-store advertisement could This would help a company gain an upper edge help a customer to recall the brand. Also the over its competitors. POSMs that are used for a particular product Mr. Ponugoti added that it is more efficient to use should be consistent across all the stores and merchandising that lasts long as there is execution should also be consistent with the advertisements costs associated with it. It is good to have POSM of the product so that a customer is able to easily that lasts 3-4 years compared to a few months. Mr. recall the product at the time of purchase. Vishal however added that the purpose of POSM The panelists also discussed the concepts of core varies from product to product. For a category like creative idea and core creative and how they are biscuits ITC would prefer to have an expensive related to the concept of merchandising. POSM whereas for a category like Hatke Jhatke The panelists later went on to discuss different the company may not prefer spending huge means of merchandising and issues related to it. amounts on the POSMs. Some companies use in house merchandising What are the new horizons in the field of while others use third party for the same purpose. Visual Merchandising and its execution? Sometimes there are issues such that the retailer In answer to this question Mr. Singh said that in promises to provide some space to the salesman. today's scenario stores could be divided into three However, when the merchandiser goes to the shop tiers:- the retailer disagrees. Another problem with using Tier1 or premium stores: - These are the ones internal merchandising is that it cannot be audited. However, in case of third party merchandisers, it is Knowledge Partner Delphique ‘08 MARKETING 25
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    CMYK MARKETING Merchandising:Current practices in FMCG and what lies ahead difficult to take any action even if it is known that the å To evaluate the strengths, weaknesses and execution is not proper. opportunities of various FMCG companies in the This marked the end of an enlightening discussion merchandising strategy. with our eminent panelists that greatly enhanced å To study the performance of merchandisers and our knowledge with respect to the issues that the difficulty in tracking the implementation and merchandising issues. benefits of merchandising. INTRODUCTION METHODOLOGY The intent of the research was understand the The methodology adopted was current practices that exist in the FMCG sector (a) Literature study - Secondary Research was especially in the unorganized sector and to study done via journals and various websites. the possible future trends related to visual merchandising. The main objectives of the (b) Primary Research –Primary research was done research were:- mainly by visiting FMCG stores and gathering data about the merchandising policies followed å pros and cons of merchandising were To identify by FMCG majors. discussed from the viewpoint of all stakeholders. å To identify key issues and concerns in FINDINGS merchandising were discussed next. STAKEHOLDERS: åthe performance of merchandisers and To study The major stakeholders in merchandising are the difficulty in tracking the implementation and classified as: benefits of merchandising. å Company å Distributor å Retailer å Buyer With Respect to the company the major players involved are the marketing division and the sales division. The major role of the marketing division is the designing of the communication strategy while the main role of the sales division is designing and Knowledge Partner 26 MARKETING Delphique ‘08
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    KYMC implementing the executionstrategy. major players involved are distributor, sales force and merchandiser. The distributor is responsible The benefits sought by a company in doing for stocking and warehousing of merchandise. The merchandising are:- role of the sales force is handling the distribution å Communication and execution of the merchandise. The å Brand Building merchandisers are the third party who is the visual experts responsible for checking out the visibility of å Relationship building their products. With respect to the retailer the major players The benefits sought by the merchandiser are:- involved are owner of the shop and the shop worker. The shop owner is mainly concerned with å sales Increased issues related to modern and traditional retailing å and schemes Incentives whereas the main role of the shop worker relates to å Relationship execution and maintenance. å Relation and soft skills The benefits sought by a retailer are:- å benefits Monetary å kind Benefits in å benefits Intangible With respect to the buyer the major players involved are buyer, the influencer and the decision maker. The role of the buyer is to make the final purchase, the influencer is the one who influences the decision of the buyer with respect to the purchase and the decision maker decides various parameters related to the purchase. The benefits sought by a buyer are:- å Aids recall å buying process Facilitates MERCHANDISING EFFICIENCY: å Convenience and utility The merchandising efficiency can be categorized in to two types:- å With respect distributor and merchandising the Knowledge Partner Delphique ‘08 MARKETING 27
  • 34.
    CMYK MARKETING Merchandising:Current practices in FMCG and what lies ahead å Communication efficiency å The ceilings of the stores can also be used for å efficiency Execution advertising as that space is mostly unutilized and can act as a good means for in-store advertising. Communication efficiency relates to visibility, attractiveness and message delivery. Visibility can åportion of the shelves which are mostly The front be brought about proper POSM placement left unutilized can be brought into use for whereas attractiveness can be brought about by a merchandising purposes. good POSM design. A good stock placement can All in all we managed to touch upon the various ensure good message delivery. aspects related to the current practices of Execution efficiency is again of two different types:- merchandising and also some of the future trends. å parameters Operation å Post-execution parameters The various operation parameters that are responsible of execution efficiency are:- å by the merchandiser in the outlet Time spent å Relationship of the merchandiser with the sales man å schemes and benefits given to the Payment retailers å Overcoming the space constraint FUTURE TRENDS: Some of the future and upcoming trends in merchandising are:- å and glass windows in the stores may The walls be utilized more efficiently for merchandising. There exist transparent windows wherein it is possible to use the outer side of the pane for advertising and from inside the window is just like any other transparent window. Knowledge Partner 28 MARKETING Delphique ‘08
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    Productivity or SupplyChain - Where should Indian Manufacturing firms focus? Delphique ‘08
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    CMYK OPERATIONS “Productivity or Supply Chain” - Where should Indian manufacturing firms focus more? PANEL SPEAKERS Mr. Venkata å Reddy, Vice President, Supply Chain, Spencer's Retail Ltd. Mr. Gaurav Gupta, Deloitte Touche Tohmatsu India å Private Limited. Mr. Alok å Srivastava, Managing Director, APAC Sourcing Solutions Ltd. Ms. Venu å Vashista, Department Manager, Logistics, P&G Mr. Girish å V Aivalli, Procurement head of Cargill India Pvt. Ltd supply chain system especially with the vendors EXPERT OPINION which would help in having a good SCM and After the student's research team presentation of increase in productivity. According to him, their research findings and posed few questions in productivity is impacted by structural issues and front of the panel, the moderator, Mr. Girish V lack of understanding about the benefits of Aivalli, took over the proceedings and moderated increased productivity. He advocated easing of the whole course of discussion between the norms for global firms to invest in India. He eminent panelists. supported supply chain over productivity because Mr. Venkat Reddy of Spencer's Retail spoke about a better supply chain mechanism automatically the high growth rate of Indian economy and its leads to a higher efficiency and higher productivity. huge potential because of the unmet demand. However, it is difficult to segregate the two. One of However, one of the problems faced by India is the the techniques to increase productivity could be scale of production. Citing his experiences at ASN i.e. advanced shipment notification. He PepsiCo India, he quoted problems of strongly believed in balancing short term and long implementing automation at a large scale. term goals. Speaking primarily from the view of retail industry To add dimensions from other sectors of the he gave stress to concentrate initially on improving manufacturing industry, Mr. Girish put up a Knowledge Partner 29 OPERATIONS Delphique ‘08
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    KYMC question that retailmay be a special case; but the shortcomings of the Indian manufacturing sector. labour productivity plays a major role in most Capital scarcity is leading to problems in sectors of the manufacturing industry. implementing automation. He advocated government involvement in such situation. Poor Mr. Gaurav Gupta from Deloitte Touche Tohmatsu infrastructure and stringent labor laws are India Private Limited, who also mentored the practically hindering the productivity. He suggested student's panel, pushed the importance of the use of effective BoT (Build operate transfer) benchmarking. He believes that benchmarking system, women empowerment and respect for the becomes a critical factor for improving the system to increase productivity. He felt that the productivity in the long run especially when we are organizational structure of the firms should be competing with global firms. According to him, more transparent so that there is better co- awareness about the quantum of benefits that can ordination between the firm and their suppliers. He be derived by benchmarking is very important. He believed in replenishment model rather than laid stress on high investment in technology and forecasting and he also shared the 3C's i.e. co- automation and stated such steps very critical for operation, communication & co-ordination for the manufacturing industry as a whole. He too achieving long term gain in productivity. supported the fact that when we are in the initial face of growth i.e. 5- 10 years of operations it becomes very important to look for efficient supply chain mechanism as a toll for reducing costs. Later productivity plays a very important role in generating profits. Mr. Alok Shrivastava, MD of APAC Sourcing Solutions and former MD Ranbaxy and Honeywell, who has had vast international exposure, discussed the topic from a macroscopic point of view. He compared India and China and talked about the special economic zones (SEZ's). Even though India started early in constructing SEZ's, it was only when China started constructing huge SEZ's, India followed the suite. China focuses Ms. Venu Vashishtha shared her experiences from more on process innovation which is very low in P&G and focused on 2 critical factors for supply some of the Indian industries like chemicals. He chain management- people and better supplier quoted capital scarcity as one of the major collaboration. People which involve employees, Knowledge Partner 30 Delphique ‘08 OPERATIONS
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    CMYK OPERATIONS “Productivity or Supply Chain” - Where should Indian manufacturing firms focus more? vendors, transporters, customers etc. should base amongst the emerging economies develop a positive attitude. Also, better accounting for 70% of India's exports. The collaboration with people can be achieved by the incremental capital output ratio for the industry has organizational design and it would result in lower improved from 0.62 to 0.59. Mckinsey global has predicted the Indian consumer market to grow to the world's fifth largest by 2025, thus highlighting the bright prospects for products manufactured in India. The manufacturing growth rate, however, has decreased from 12.3% in 2006-07 to 8.8% in 2007-08. It is mainly due to poor infrastructure, bureaucratic red tape, restrictive labor laws, and outdated technology. Between 1990 and 2007, industry's contribution to the economy has remained stagnant, crawling from 25% to 27%. logistics cost. She said that to improve productivity education system needs to be made strong. She Key issues ailing the sector believed that employees learn in 1st year and start contributing in consecutive years. She strongly Supply Chain management: believed that it is not possible to isolate Against a world average share of 15-20% of the manufacturing from supply chain and therefore total manufacturing supply chain expenses there is great need for collaborative measures and contributed by the logistics component, India is an participative methods between the inbound underperformer with logistics contributing to 30% activities i.e. manufacturing and outbound activity of the supply chain costs. Two major issues as i.e. the supply chain. For achieving this she found from the research were suggested using the following measures: Poor inventory management: Currently, the total åTPM: Total Productivity management inventory holding costs account for about 20-40% åIWS: Integrated Work Systems of the inventory tied-up costs, which in turn, åCBD: Customer Business Development in place of account for 40% of the manufacturing GDP. This sales accounts to a figure of US dollars of 1.2 to 1.6 billion. The research showed that Indian firms åSBD: Suppliers Business Development particularly lack in areas like product design and on Indian Manufacturing Industry time delivery. Also, poor inventory management put a majority of the Indian players into a vicious The Indian manufacturing industry is the 4th Knowledge Partner 31 OPERATIONS Delphique ‘08
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    KYMC circle. Poorinventory management leads to poor å Create an information flow with business replenishment and poor supply leading to partners increased inventory holdings which in turn leads to å Employ Vendor Managed Inventory (VMI) late orders which drives up the logistics cost. This puts Indian players into precarious situations. å the inventory from forecast Decouple Lack of supplier collaboration: Indian supplier å Do inventory profiling collaboration at 9% overall seems pretty low å Reduce pilferage and improve physical handling compared to 36% for USA and 33% for Germany. å Clear visibility of warehousing Research done for different manufacturing industries show that supplier's involvement and Productivity: customer involvement is poor in most sectors of the industries. In automobiles, 40% respondents Studies have shown that a 1% increase in labour indicate low level of involvement, but 60% is productivity and a 1% decrease in both cost of equally divided in all the other 3 segments. capital & capital intensity will lead to an increase in Demand management (64%) and order fulfillment annual investment growth by about 14.5% (54%) have higher involvement but in case of inventory management the customer involvement (50%) is lower. In FMCG two-third respondents indicate low involvement for both supplier and customer. Customer is more involved in distribution management (60%) and product development (64%) and no involvement in import-export. In Consumer durables, either very low or very high participation was observed. In Engineering, 26% The current position of India with respect to China respondents indicate that there is high customer (graph shown above) in terms of manufacturing involvement in different processes. Also the Sector GDP in Rs at constant price per 1000 supplier involvement was found to be low in workers employed shows that both India and China demand management. were almost comparable back in 1980s whereas Recommendations now India stands at 44.95 compared to China at 351.7524 and USA way ahead at 4783.59. Two The following recommendations were proposed major issues found from research were: Lack of on the job employee training: Low skill levels were identified as major hindrance to Knowledge Partner Delphique ‘08 OPERATIONS 32
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    CMYK OPERATIONS “Productivity or Supply Chain” - Where should Indian manufacturing firms focus more? productivity. Findings of the research showed that employers, 'employability' refers to possession of only about 15% of manufacturing firms in India the skills, knowledge, attitudes and commercial provide on-the- job training, which raises their understanding that will enable new employee to productivity by a 25% above those that do not make productive contributions to organizational provide training. An estimated 80 million young objectives soon after commencing employment. workers need up to 2 years of training for even Therefore vocational institutes should do the basic skills. The possible reasons for firms to not following provide training were low levels of education, å Modifications to existing course content in limited resources for training, imperfect information consult with the employer. Introduce new courses with the employer about the benefits of training and and teaching methods and expand provision of poaching of trained workers. The possible effects opportunities for work experience of such deficiency were increasing business costs, job retention rates drops, less global investment å Embedding the desired skill sets within the and high relocation cost. courses Inefficient work environment for the labour: India is å'stand-alone' skill courses which are Offering infamous for its stringent labor laws that very much effectively 'bolted on' to traditional academic hamper the productivity. Some of the road blocks programs are å and strikes: According to their study” Disputes manufacturing sector accounted for the highest number of disputes (i.e. 63.60% of the total industrial disputes ) with a time lost of close to 14million man-days. åLabour Laws: Laws are again stringent Inflexible and inflexible. å Poor incentive structure. å Low expenditure on R&D (only 15% of total sales) Recommendations Following recommendations were suggested Enhancing employability: Rather than providing Knowledge Partner 33 OPERATIONS Delphique ‘08
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    KYMC New Institutional Arrangements: commitment, lower absenteeism and lower labour turnover. å end manpower through collaborative Create high efforts: By pooling resources of a large number of Collaboration with Labour Unions: institutions a critical mass can be built and high- In introducing all schemes relating to productivity, end manpower can b produced in sufficient such as, system of payment by results, individual numbers and group incentive schemes, norms of staffing å Embedding the desired skill sets within the and workload, changes in organisation and courses methods, rationalization, mechanization etc.; agreement with concerned unions must be å'stand-alone' skill courses which are Offering established. effectively 'bolted on' to traditional academic programs Effective Labour Legislation: New Institutional Arrangements: Firms should work with Government Organizations like FICCI to bring about labour reforms. å end manpower through collaborative Create high efforts: By pooling resources of a large number of institutions a critical mass can be built and high- end manpower can b produced in sufficient numbers å Skill development networks: For engagement of higher education institutions with industry and employers, sector-specific membership based networks could be created. These networks would also compile and collate high quality labour market intelligence and make it generally available to all for making informed decisions. Labourization: (Financial Participation of Labour) Distribution of Gains from Productivity: It means moving from the Master-Servant relationship through a better deal, joint The gains of productivity should be distributed consultation, joint management, auto- between shareholders, workers, consumers and management, and participation in ownership to plough-back effect. The formula evolved by NPC Worker's Ownership .It is a means of improving and Dandekar to allocate the gains of productivity motivation and productivity. It leads to greater between the shareholders and others was stated. Knowledge Partner Delphique ‘08 OPERATIONS 34
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    Opportunities For The AutoComponent Industry Delphique ‘08
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    CMYK STRATEGY Opportunity Areas and Challenges for Indian Automotive Component Players PANEL SPEAKERS Mr. Gaurav Gupta, Senior Manager, Deloitte å Mr. Puneet Kalra, Senior Principal, Monitor Group å Mr. Kiran å Deshmukh, Deputy MD, Sona Koyo Steering Systems Ltd. Mr. D. M. å Mani, General Manager (R & D), Subros Ltd. å Raina, Strategy Management Area, MDI Prof. S N the discussion by emphasizing the need for EXPERT OPINION initiatives at three levels – firm, industry and An insightful presentation by the research team government level to ensure that ambitious targets was followed by an invigorating panel discussion set for the Auto component sector are achieved. He which basically covered the following key points felt ACMA needs to play a major role to help the Further å initiatives that need to be taken at firm, government meet the expectations of the firms and industry and government level the industry as whole. Possible å impact of the launch of cars like the Tata According to Mr. Gaurav Gupta unlike the ITES Nano sector there is no cost advantage to India in the Auto components sector. In fact India stands at an Preparedness å of Indian Auto Component 8-10% cost disadvantage in comparison with Industry to handle the competition competing nations like China and Thailand. This Current å and Future trends that will impact the was mainly due to the poor infrastructure mainly Auto Component Industry roads and power supply and the high cost of capital. Micro interventions by the government in Firm, Industry and Government not just infrastructure but also areas like consumer finance, R&D will be required to ensure the vitality level initiatives of the industry. Prof. S N Raina, the panel moderator triggered off Mr. Deshmukh was optimistic that GOIs initiatives Knowledge Partner 35 STRATEGY Delphique ‘08
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    KYMC like the goldenquadrilateral project will make the at the firm and industry level to make India a auto components supply chain efficient. Also the competitive destination for auto component boom in the sales of commercial vehicles due to manufacturing. these initiatives would ensure high growth rates for the auto components sales. He stressed on the The Nano Effect need for better infrastructure at ports and improved The panel was unanimous on the positive impact of connectivity between the auto clusters and ports. the recent launch of “Nano” by TATA Motors. Being an active member of ACMA he shed light on Besides ensuring global recognition for the Indian some of the initiatives taken by ACMA and GOI to Auto sector especially its design and engineering promote research & innovation e.g. tie-ups with capabilities it has also had a positive rub off on the MIT, IITs etc and establishment of NATRIP. auto component suppliers associated with the Mr. Puneet Kalra disagreed with the Indian concept Nano project. Under cost pressure the suppliers of auto clusters. He emphasized that mere co- had to focus on parts design, materials, existences of companies in close proximity cannot manufacturing process as well as the supply chain. be termed as a cluster. According to him The Nano experience would definitely help them government and ACMA need to ensure that factor cater to the needs of the global players more conditions around so called auto clusters in NCR, efficiently. Pune, Chennai improve substantially so that the firms become more competitive. He also expressed his concern with the high level fragmentation in the industry with 5000 players outside the ACMA fold. In his view the Indian firms need to specialise in specific component manufacturing e.g. bulbs, reflector systems, steerings etc instead of focusing on too many components and going forward how they manage their supply chain will ultimately impact their standing in the world market. Mr. Mani felt fragmentation is not a serious concern Preparedness of Indian Auto since major auto component players are few and Component Industry already under the aegis of ACMA. Coming from the R&D background he said that there was an urgent Prof. Raina cited an example of South Africa which need for competency mapping and gap analysis at in spite of having a small domestic market for auto Knowledge Partner Delphique ‘08 STRATEGY 36
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    CMYK STRATEGY Opportunity Areas and Challenges for Indian Automotive Component Players components has export figures comparable to that export figures. of India because of the high levels of specialisation Mr. Gaurav Gupta felt that the current economic that its firms had attained. He also expressed his slowdown as well as the declining auto sales in the concerns regarding the over dependence of Indian global markets presented a tremendous auto component suppliers on the US market and opportunity for India since there will be increased the extremely low investments in R&D as pressure on global players to outsource the auto compared to major competitor like China. component manufacturing in order to cut costs. Mr. Kalra agreed on this and cited the need for According to Mr. Deshmukh India is fast emerging identification of specific competencies of Indian as the hub for small cars so any shift towards small auto component industry and get disproportionate cars in the global auto market is a welcome change investments directed towards developing them. for us. He also felt that the export earnings of Indian According to Mr. Gupta Indian players need to auto component sector would get a boost with the hedge their risks and reduce their dependence on increase in the manufacturing and export of small US by tapping other markets like Europe, Asia cars from India by players like Maruti Suzuki, Pacific, Latin America and even Africa in the future. Hyundai, Renault-Nissan, GM etc. They also need to aggressively focus on cost reduction as well as quality improvement since countries like China posed a serious threat. Mr. Deshmukh too agreed that “quality” is increasingly becoming an order qualifier rather than order winner. He expressed his satisfaction with the steps taken by ACMA to guide the smaller players in scaling up their operations as well as improving the quality standards in the industry. Current and Future Trends Prof. Raina raised the issue of the slowdown in Mr. Gaurav Gupta added that India's emergence as auto sales as well as vehicles usage in US and EU the small car hub would also mean that Indian and the shift towards smaller vehicles from sedans players get a bigger chunk of the auto components and SUVs. He felt that such developments posed after market which offers higher margins for the tough challenges in the achievement of targets set manufacturers. for Indian auto component industry especially the The OEMs need the Tier 1 suppliers to be situated Knowledge Partner 37 STRATEGY Delphique ‘08
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    KYMC near shore andTier 1 business extensively Industry has emerged as one of India’s fastest involves technology, R&D and large scale growing manufacturing sectors, growing at a investments. With improvements in the supply CAGR of around 27.2% in value terms between chain and increasing cost pressures on OEMs and 2002-03 and 2007-08. But the Industry is highly Tier 1 suppliers there will be increased activity in fragmented with around 5,000 companies in the the Tier 2 and 3 businesses. un-organized sector, accounting for 23% of the market contributing primarily to the replacement The increasing concerns over environmental market. The rest of the market is comprised of degradation and the subsequent emergence of around 400 players contributing to OE, Exports and stringent emission norms would lead to increased replacement market. pressures on auto component manufacturers to innovate according to Mr. Mani. The weight of the vehicle has a direct relation to the emissions so alternative materials like plastics would be increasingly used to cut down the weight of the auto parts. These pressures would also help improve the design and engineering capabilities of the auto component manufacturers as has been already observed in case of suppliers of Nano. The Research Introduction - Indian Automotive The Indian Auto component industry caters to most of the product segments as shown in the adjoining Component Industry figure: Indian Automotive Components sector is an interesting sector to study in the current economic context especially because this sectors future depends on the demand derived from the Automobile industry. In developed economies like US the demand for automobiles has tapered off after decades of fast paced growth, in fact negative growth is being reported for many categories of vehicles. The Indian Automotive Component Knowledge Partner Delphique ‘08 STRATEGY 38
  • 50.
    CMYK STRATEGY Opportunity Areas and Challenges for Indian Automotive Component Players Demand Drivers – Industry Auto Components – OEM Composition Demand The Indian automotive component industry is The domestic OEM demand will continue to be a driven by the domestic automotive industry and the growth driver for the Indian auto component export demand from the global automotive industry. With the automotive market expecting a industry. robust growth over the next 5 years, automotive component demand from the OEM is expected to grow in tandem at a 7% CAGR till 2015 to $14 billion. In the past, the domestic OEM demand and the replacement market have been the predominant force behind the growth of the automobile component industry. Supply to the OEMs constitutes the major share of the Indian auto component market, at 59% of the total market followed by the replacement market. But since the Intensifying competition and reduced margins in the developed countries have forced automakers across the globe to look for low cost destinations, going forward this mix is expected to change significantly with exports growing at a faster rate The growth in OEM demand is expected to be than the domestic OEM demand and constituting fueled by a greater number of global OEM's setting about 53% of the total market. Knowledge Partner 39 STRATEGY Delphique ‘08
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    KYMC up base inIndia and launching of new vehicle Auto Components – Export models by existing OEMs. Passenger Cars and Utility Vehicle segments are the largest consumers Demand of OEM Auto components and given their rapid The Indian auto component industry derived growth rate till 2015, it is expected this segment approximately $4 billion in sales from the export would continue to remain the largest customer. market and has grown at a CAGR of 40% in the last five years. Going forward the demand from the Auto Components – Domestic export market is expected to be the biggest growth Replacement Market driver for the Indian auto component industry. It is estimated to reach $20-25 billion by 2016. The The Indian replacement market currently market composition of exports over the last decade constitutes 22% of the Indian Automotive has changed significantly. Currently, India exports Component Industry and is currently estimated to 75% of components to OEM/Tier 1 markets and the be about $4 billion. It is expected to grow at a remaining to the aftermarket players. CAGR of 5% till 2015 to reach over $5 billion. Value of Indian Automotive Component Industry – 2016 The average spend on replacement parts per vehicle is estimated to decrease across all vehicle segments due to advances in technology and reliability of original parts leading to slow growth in this segment. And as shown in the graphs, the Based on these drivers of demand of the Indian electrical and equipment components would be the Auto Component Industry, the industry is projected fastest growing product categories largely due to to reach a value of $ 35- 40 billion by 2016 as the increase in electrical parts in vehicles and due depicted in the graph above. to high wear and tear. Knowledge Partner Delphique ‘08 STRATEGY 40
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    CMYK STRATEGY Opportunity Areas and Challenges for Indian Automotive Component Players Outsourcing Trends to Low Cost innovations and production of major components/units of a vehicle, the rising costs Countries within the industry are pushing them to transfer The Global auto component industry is currently these responsibilities to their Tier 1/2 suppliers. To $1.2 trillion and is expected to grow to $1.65 trillion meet the demand of the OEM’s, auto component by 2016. It is estimated that by 2016, $700 Billion suppliers are increasingly moving up the value would be outsourced from LCCs chain, graduating from component specialist to system and module assemblers. Exemplifying this feature is the growth in supplier value addition, from 65% in 2002 to 78% in 2015, within the manufacturing process. An emerging trend in this regard is the changing roles and responsibilities of various suppliers across the spectrum of the value chain. Global Automotive Industry – Technological Trends Another emerging trend within the automotive industry, is the changing technological and India's export potential is derived by analyzing its innovative environment, impacting both OEM’s competitiveness across the following parameters and suppliers. in relation to other countries: How India's Industrial and Technology conditions would rank in relation to Other International Trends other S.E Asian Outsourcing destinations. Shift in consumer preferences from large vehicles å Compared to other Asian automotive component to smaller cars due to rising fuel prices manufacturers India's superiority clearly lies in its Engineering, Design and Quality capabilities. Shift towards å “greener”, more fuel-efficient vehicles leading to changes in technology e.g. Global Automotive Industry – hybrid cars, Alternative fuels etc Supply Chain Trends Escalating raw material prices – impact on quality å of raw materials and profit margins e.g. Traditionally OEM’s retained the profile of Increasing steel prices may result in the use of undertaking majority of the assembly, design, alternative metals like Aluminium Knowledge Partner 41 STRATEGY Delphique ‘08
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    KYMC Increased competition –along with relatively slow å Recommendations growth and high costs in mature markets – prompting automakers and their suppliers to In order to ensure that the Indian Auto Component increase presence in emerging countries like Sector manages to achieve the projected growth Brazil, Russia, India and China based on its study the research panel recommends that focussed actions need to be taken at three New alliances å and partnerships around levels i.e. Firm, Industry (by industry associations innovation and technology and also car buying like ACMA) and Government level. attributes changing from basic to enhanced features Firm Level The impact of WTO and FTA's to encourage trade å Increased investments in R&D å of auto components between countries at Strong focus on Product Development å favourable prices Improve å the engineering and manufacturing Indian Auto Component technology being used for production Industry – Competitiveness Increase å the use of Information Technology as a business enabler Drivers Industry Level å benchmarking Initiate initiatives with respect to the global auto component majors å consolidation of smaller players Facilitate å competitiveness evaluation Regular Evaluate å the educational requirements for the manpower and collaborate with universities and industrial training institutions Government Level å improvement of infrastructure Focus on å development of automotive clusters Facilitate å the availability of capital Enhance Knowledge Partner Delphique ‘08 STRATEGY 42
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    Empowering Businesses: Innovation inIT Strategies Delphique ‘08
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    CMYK Sponsor INFORMATION MANAGEMENT Empowering Businesses: Innovation In IT Strategies PANEL SPEAKERS å Baidya, Account Technology Specialist - Mr. Aloke Central Govt. and Healthcare of Microsoft Mr. Baba å Varansi, Head, Department of Innovation of CSC India Pvt. Ltd. Mr. Vaidya å Nathan, Global Innovation Leader of Cognizant å Sidana, Business Development Engineer Mr. Vikas (ESS) of HP Mr. Mahadeo Jaiswal, Professor, MDI Gurgaon å This means that companies need to access talent EXPERT OPINION wherever it is available. Hence the need for UC The research team presented their findings on key becomes all the more important. challenge areas for foreign companies and brought The panel also reasoned that revenues from server out several actionable items for the panel to sales have not reduced with the advent of discuss and opine upon. One of the most important virtualization. This is because even though question was the need for innovation in IT demand for servers has gone down, demand has industries. The panel was of the opinion that any grown for servers with large computing power barriers and constraints can be acceptable until which can be sold at a higher price. The panel also they become obstacles to growth. Then the need to believed that companies are moving away from challenge the status quo arises. When this need traditional 'hardware silos' (physical servers) to a arises, innovation is needed. pool of resources concept, in which resources can The panel was also of the view that the tough be assigned when required and returned to the environment created complicated situations and pool when their work is over. were cause for companies to rethink their The panel believed that virtualization caused strategies. The panel also believed that India as a complications in management of infrastructure as country is moving from a situation of labour with a heavy virtual server sprawl, it becomes arbitrage, which was once caused due to difficult to monitor each machine separately. The outsourcing but is now considered a hygiene factor, panel believed that with the ease of deployment, to a situation of intellectual arbitrage. Knowledge Partner 43 INFORMATION MANAGEMENT Delphique ‘08
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    KYMC virtual servers arecreated at a rapid rate and there Given below are some of the commonly expected is a need for unified infrastructure management deliverables of IT strategies in businesses today: and the need for some industry standards to be set. 1) TCO of Technology The panel believed that UC is a major enabler as it Between 1996 and 2006, the total cost of allowed people to communicate via different ownership for servers worldwide rose from US$98 mediums, e.g. to answer emails via phone, thereby billion to more than US$250 billion. The rising costs creating an anywhere office. However the panel did are projected to continue and are being driven, first believe that there must be some form of encryption and foremost, by server management and to ensure secure communication across different administration costs. The secondary driver behind devices. rising ownership costs for servers is the cost of Panel believed that demand for new data centre's power and cooling for data centers. Often the constitute 50% of the total IT budget. The panel power consumed by the cooling systems is the also believed the need to create Next Generation same as that consumed by the servers Data Centre (NGDC). NGDC is software which can themselves. Apart from all this, there is the issue of be used as a service in which SME's can borrow finding floor space for data centers and that too server and other resources from a host. This also adds to the cost. So with the cost of electricity and includes cloud computing. personnel rising, CIOs clearly have their work cut out for them when it comes to containing costs. The panel believed that convincing the customer on ROI of emerging technologies is a long sales 2) Business Agility And Speed process in which the client is studied in detail and a Agility is defined as the ability to respond rapidly to technology suited for its purpose is identified. events that occur in business. Speed is defined as Finally ,the panel was of the opinion that the ability to execute operational and strategic companies have to use IT strategies to create a objectives. In a Mckinsey Global survey among unique value proposition, deep business insights corporations in 2006, 90% respondents said agility and think in terms of value provided to the is very important to business and about 86% said organization rather than just a functional the same about Speed. To be agile and speedy, component. Business decisions have to be in a matter of minutes and hours rather than days and weeks. Key Deliverables Of IT Thus there is a high need to be more nimble and strategies flexible. These requirements are direct expectations from IT departments of today. Businesses have certain expectations and goals when implementing any kind of IT strategy. Knowledge Partner Delphique ‘08 INFORMATION MANAGEMENT 44
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    CMYK Sponsor INFORMATION MANAGEMENT Empowering Businesses: Innovation In IT Strategies 3) Employee Productivity Data Centre Virtualization Working in office cubicles leads to morale problems According to Moore's Law computing power as workers begin to feel confined in semi-private doubles every 18 months. While there are some "nests" with little contact with the outside world. computing applications with an insatiable appetite When worker morale is low, productivity also tends for computational resources (gaming, modern to suffer. There are other causes that affect desktop applications and high throughput server employee productivity such as increasing applications, to name a few), there are many depression, rising competition and poor work life applications whose computational demands have balance. Productivity in the US is a meager 1 not increased at the same rate as computing percent. It was the IT and communication hardware. It is not uncommon to see server revolution in 90s' that had caused the productivity utilization figures of less than 10 percent per levels to go up to 3%. physical server for these types of applications. Light weight web serving, DNS, VPN solutions, and low throughput databases are all examples of 4) Green IT computing workloads that do not place inordinate Corporations are growing more and more demands on modern server hardware. It seems environment conscious and are always on the somewhat wasteful to buy a new machine and use lookout for technologies that are environment so little of it. Using old machines isn't such a great friendly. Corporations are looking out for ways to solution, either, as they are often unreliable (and reduce their carbon footprint and any IT strategy difficult to get spare parts for), have high power which does this will be adapted by corporations requirements, and take up a lot of space. rapidly. Virtualization allows much more efficient utilization Based on these four factors, the group shortlisted of underlying hardware by combining several of several new and upcoming IT strategies such as these workloads on one server, while still allowing web-oriented architecture, social networking, the workloads to be isolated from one another as if cloud computing, virtualization, unified they were running on physically separate communication, etc. From these, the group chose computers. The servers continue to work two strategies which the group believes will be very independently as if working on native hardware. popular among organizations in the near future, This is called virtualization. It achieves this by given the fact that we are going through extremely forming a layer between the physical hardware and difficult times. These two IT strategies are data the operating system, creating a number of virtual center virtualization and unified communication. instances of the operating system. This means that each machine can be used to create several virtual servers, all running different applications. Knowledge Partner 45 INFORMATION MANAGEMENT Delphique ‘08
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    KYMC There are differentdomains of virtualization that Business Benefits of Virtualization come under the broad category of data centre 1. CAPEX Benefits virtualization namely Server virtualization Out of all three of the different types of virtualization discussed in this article, server virtualization is the type of virtualization most are familiar with. When people say "virtualization", they are usually referring to server virtualization. Storage virtualization Storage Virtualization is the pooling of physical storage from multiple network storage devices into what appears to be a single storage device that is managed from a central console. Storage virtualization is commonly used in a storage area network (SAN). The management of storage o Reducing Capital Spend on IT Hardware devices can be tedious and time-consuming. o According to a Forrester Research “The Storage virtualization helps the storage State of Enterprise Infrastructure in administrator perform the tasks of backup, Europe 2006”, nearly one-third of the total archiving, and recovery more easily, and in less IT budget is spent on enterprise hardware time, by disguising the actual complexity of the and maintenance that includes servers, SAN. PCs, and networking. In this component of Network virtualization Enterprise Hardware Spend, the share of Network virtualization is a method of combining the Servers is as high as 25%. available resources in a network by splitting up the o Server Hardware Consolidation ratios of available bandwidth into channels, each of which is 8:1 to 12:1 can be easily achieved leading independent from the others, and each of which to 70 – 80% CAPEX savings. can be assigned (or reassigned) to a particular o Server utilization is normally 10% and server or device in real time. Each channel is maximum goes up to 30%. So it makes independently secured. Every subscriber has financial prudence to run the non critical shared access to all the resources on the network from a single computer. Knowledge Partner Delphique ‘08 INFORMATION MANAGEMENT 46
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    CMYK Sponsor INFORMATION MANAGEMENT Empowering Businesses: Innovation In IT Strategies servers requirements on the same server previous virtual machine state so that server utilisation goes up to 60 – o A virtual server can be deployed in 70%. minutes, adding flexibility and speeding o Reducing Space Requirements your time to market – It could take upto four weeks to deploy a standalone o Software Licensing Costs server including time to order , build it , o Reducing cooling requirements test it and install the applications o Immediate Realization of benefits o Higher availability and less maintenance, to keep your business up and running 2. OPEX Benefits o Reducing carbon footprint o Reducing Power Costs – Due to both hardware and cooling systems o Improved IT Infrastructure Scalability o For every $1 spent on new server spend, o Increased Reliability through reduced $0.50 is spent on energy to power and cool downtime and faster disaster recovery it Unified Communication Today's business leaders understand they must respond rapidly to changing developments to meet customer demands and improve profitability. Business communications have become more complex, and despite investments in technology, such as instant messaging and mobile devices, companies still have difficulties contacting key decision-makers in a timely o Reducing Administrative Manpower manner. To maintain a competitive edge and Requirement grow profitably, companies need to respond more o Reduced Downtime (Disaster Recovery) quickly to their employees and customers and 3. Strategic Benefits must avoid communication obstructions. o Increased agility Gartner defines UC products (equipment, software and services) as those that enhance o Difficult upgrades and migrations can be individual, workgroup and organizational attempted, tested and rolled back to a Knowledge Partner 47 INFORMATION MANAGEMENT Delphique ‘08
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    KYMC productivity by enablingand facilitating the control, 2. Increased Employee productivity management, integration and use of multiple 3. Reduced travel expenses enterprise communication methods. According to Gartner, UC products achieve this through the 4. Time savings convergence and integration of communication o Easier messaging management channels (that is, media), networks, systems and o Easier accessibility business applications, as well as through the consolidation of the controls over them. UC o Greater co-worker accessibility products may be made up of a stand-alone product suite or may be a portfolio of integrated applications and platforms. Figure 3: Unified Communications Business Benefits Of UC 1. Increased Business agility o Real time collaborative decision making o Speedily resolve customer Issues o Increased incidence of 'First time resolution' for customers Knowledge Partner Delphique ‘08 INFORMATION MANAGEMENT 48
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    Credits Event Secretary Research Team Puneet Babail Finance Panel Senior Core Team Senior Research Team Dr. Sangam Singh Tanuj Mukhija Saurabh Goenka Depesh Kashyap Kamal Chopra Vanita Thareja Gaurav Parikh Nitin Chawla Nikhil Agarwal Sonam Chopra Rajandeep Singh Priyanka Gulati Samyak Jasani Ruchie Chaudhary Anubhav Jain Junior Research Team Rahul Bansal Avni Mehta Abhishek Jain Amey Kulkarni Junior Core Team Deepak Gupta Ravi Ranjan Sureet Goyal Sharath Rao Sudhanshu Garg Nipun Jain Shruti Nischal Human Resources Gaurav Verma Rohit Kumar Singh Rajkunwar Singh Senior Research Team Shreya Praajya Pandey Vivek Rathi Nidhi Grover Aditya Goyal Vishal Tekriwal Abhishek Kartik Krishnamoorthy Achina Sharma Ridhima khorana Juhi Lalchandani Sneha Shalini Heena Prazapati Junior Research Team Namita Gupta Priyanka Agarwal Nandan Nerurkar Kiera Carvalho
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    Credits(Continued) Information Management Panel Operations Panel Senior Research Team Senior Research Team Shrikant Vishwanathan Viraj Mehta Arnab Dutta Arnab De Amitesh Bajad Shaveta Goyal Saurabh Bhatia Gopal Kapoor Lokesh Jetty Manish Maheshwari Manisha Patel Junior Research Team Junior Research Team RVRK Abhishek Sharma Siddharth Mallya Vaibhav Agarwal Varun Malik Arpit Pandya Akshat Gupta Marketing Panel Strategy Panel Senior Research Team Senior Research Team Charuta Ambardekar Saurabh Jain Arun Ganesh Drishti Yadav Ankit Garg Swati Dalal Ram Sharma Prateek Agarwal Monil Chheda Ankit Taparia Vaibhav Mohan Mayur Soni Junior Research Team Junior Research Team Reeti Bhatia Parag Raheja Hitesh Parikh Mayank Agrawal Anurag R Ankur Mathur Purav Nikhil Parekh Ashwin PV
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    Partners Associate Co-Sponsors Sponsor Knowledge Partners Logistics Media Partners Partner
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    DELPHIQUE ‘08 National ManagementConvention www.mdi-delphique.com Management Development Institute, Gurgaon www.mdi.ac.in