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TI CYCLES: NEW PRODUCT presents analyses of the management case

by academicians and practitioners


Rakesh Basant
Professor, Economics Area
Indian Institute of Management,
e-mail: rakesh@iimahd.ernet.in

here are a few points about the context of TI Cycles that need to be
recognized explicitly. The company is operating in a mature industry
where competition is very high. Product innovations are few and
incremental. A long run product life cycle operates for the two core models
– ‘specials’ and ‘standards.’ While the market has matured for both the mod-
els, the level of maturity is more for the ‘standards’ than for the ‘specials’ and
the market for the latter is growing more rapidly. Incremental product inno-
vations (that are usually quickly imitated) expand the growth phase for the
‘specials’ from time to time. Ability to introduce new variants of existing
models and somewhat different models quickly is critical to retain market
share. Given the maturity of the industry and product life cycles, manufac-
turing costs (prices), the ability to undertake incremental product innova-
tions (design changes), and the speed to market are critical for maintaining
competitiveness. Followers are often able to gain a lead over the first movers
in specific segments. The drivers of demand essentially are the rates of growth
of income and its distribution.
In such a situation, the strategy of TI Cycles, especially the one related
to new product development, needs to be formulated in the context of the
competencies the company has acquired over the years and its access to com-
The January-March 2003 (Vol 28 No plementary assets.
1) issue of Vikalpa had published a
management case titled “TI Cycles:
Mukund R Dixit and Abhinandan K The company was set up with a foreign collaboration that involved techno-
Jain. This issue features four respons- logy transfer. Over a period of time, it acquired the capability of usefully
es on the case by Rakesh Basant, Sal-
ma Ahmed and Ashfaque Khan, At- absorbing and adapting the technology acquired from outside. Development
anu Ghosh, and Manmohan Rahul and of the capability to absorb foreign technologies was not restricted to TI Cycles
Shalini Rahul. alone but to other group firms as well.


While the company did a good job of absorbing for- While the company had gone through an exercise to im-
eign technologies, it did not focus on R&D activity in any prove manufacturing-related practices, its cost of manu-
significant manner to build upon the technologies ac- facturing was still higher than its competitors. Conse-
quired from outside. As a result, it was not able to keep quently, it was not able to compete on price especially in
pace with technological developments in the developed the standards segment.
countries. Its participation in the exports market and the One of the reasons for lower manufacturing costs of
associated learning remained restricted to low-end cy- its competitors was that they had access to low-cost, de-
cles. Moreover, no R&D effort seemed to be taking place centralized manufacturing facilities in North India. Hero,
to explore new materials that are increasingly being used for example, had about 100 ancillary units dedicated to
in bicycle manufacturing world-wide. Consequently, the its production. These linkages with cycle parts manufac-
technology gap between TI Cycles and developed coun- turers had been nurtured and developed over the years
try firms was so large that the company did not have the and were difficult to replicate. Nonetheless, most of the
design and manufacturing capabilities to make the mid- cycle parts are now commodities and TI Cycles needs to
dle-and upper-end bikes for these markets. actively explore the possibility of utilizing this geographi-
An interesting feature of TI Cycles was that product cally bound pool of capabilities based on specialized
management, product development, manufacturing, and decentralized manufacturing. From this pool, they may
purchase departments under the overall guidance of the need to work closely with some vendors to develop long-
General Manager-Marketing and the Vice President term, mutually rewarding relationships.
jointly shared the new product design and introduction There seemed to be some gaps in the company’s dis-
activity. Such cross-functional teams are an important tribution network as well. The dealers were not well
vehicle for developing products that are marketable (as equipped to deal with after-sales service and repairs
they are based on consumer preferences and feedback) particularly for the bikes in the ‘specials’ segment. Un-
and manufacturable at low cost. The product design was, fortunately, the dealers had more interest in selling ‘spe-
therefore, in line with attributes preferred by the con- cial’ category cycles rather than the ‘standard’ category
sumers and in-house delays in ramping up due to bikes. It is not entirely clear why the dealers did not
manufacturability-related problems were avoided. The favour the ‘standard’ bike. Apparently, such bikes did
skills required to fully exploit this process of product not bring the customer to the stores, while fancy bikes
development seemed to be available with the company. did.*
One apparent gap in this process of new product devel- The dealers, especially in smaller towns, were not
opment was that the manufacturing segment was not working exclusively for TI Cycles. Thus, distribution-
involved at the product design stage. The interaction related complementary assets in such towns were becom-
between manufacturing, purchase, and product devel- ing non-specialized. These dealers were ill-trained to
opment department began at the prototype development deal with after-sales service problems. The idea of spe-
stage. More interactions at the design stage would prove cialized distribution assets like “cyclinics” would make
useful to enhance manufacturability and improve time business sense only in larger towns and there too one
to market. cannot have many of them. There is no substitute for
better training for dealers to take care of technical issues
ARY that crop up at the point of sale and after-sales service.
Often, well-designed products do not add to the compet- Such training is all the more important because assembly
itive advantage of the innovating firms because they do is done at the dealers’ level and inadequate training can
not have access to good complementary assets. These lead to faulty assembly that would result in more post-
assets include competitive manufacturing, marketing, sale problems. Dealers are also the major source of infor-
distribution, brands, etc. How was TI Cycles placed in mation about the problems faced by the customers. Pres-
terms of complementary assets vis-a-vis its main com- ently, TI Cycles is not collecting data on such problems on
petitors? a regular basis. Such data can be very useful for training
In terms of brand, TI Cycles was not disadvantaged as well as new product and process design.
vis-a-vis Hero and Atlas. The critical disadvantage ema-
* The case does not provide information on differences in dealers’ margins
nates from relatively inferior manufacturing capabilities. between the two types of bikes.


The company’s loss of market share in the domestic solidating TI Cycles’ position in the existing markets and
market especially in the ‘standards’ segment was prima- product groups, the long-term perspective should be to
rily due to its inability to compete on prices. However, it expand markets and get into more demanding products.
was competitive in a few ‘specials’ categories like SLRs In the short run, TI Cycles should focus on fine-tun-
and MTBs, while its market share was relatively low in ing its product development process and on manufactur-
other ‘specials,’ namely the bicycles for kids and juve- ing to reduce costs and upgrade its relationships with
niles. Overall, its market share in the ‘specials’ category dealers and vendors.
as a whole was the highest among all competitors. This The company has done well to avoid the ‘over the
partly also explained its relatively higher market share in wall’ syndrome in the product development process.
larger towns where such bicycles are predominantly used. However, it can probably still improve the product de-
It is critical to find out if the larger market share in ‘spe- velopment cycle, especially by involving manufacturing
cials’ is due to better quality or a higher brand image, department at the product design stage. This will im-
assuming that TI Cycles had a cost disadvantage of about prove time to market. The product development group
10 per cent in this category. In the same vein, it is impor- should also systematically analyse customers’ complaints
tant to understand the drivers of cost advantage of the through cross-functional teams. The recurring complaints
Chinese firms in the international market. should find space in the Saturday meetings. These may
Understanding the source of this competitive advan- provide useful inputs for product design and even pro-
tage is critical for at least two reasons. First, TI Cycles is cess changes.
only competitive in these segments and understanding The company needs to gear up the organization for
of its determinants may help identify strategies for en- price competition but deliver good quality at the same
hancing competitiveness in other segments as well. Sec- time. A sharper focus on manufacturing is a must to
ond, ‘specials’ also happens to be the growth segment achieve this objective. Some efforts in this respect have
and a better understanding of the sources of competitive- already been made but there is a need to do more in this
ness in this segment will facilitate faster growth and bet- area. Two initiatives may be useful in this regard. One is
ter market penetration in a growing segment. outsourcing, an area the company is already working
An interesting aspect of Hero Cycles’ competitive- upon. The other is to re-evaluate the internal manufac-
ness is that it is able to manage a relatively high market turing systems especially from the perspective of reaping
share both in ‘standards’ and ‘specials’ segments. Except synergies in the production of ‘standards’ and ‘specials’
for SLRs and MTBs, Hero Cycles is significantly ahead of and different categories of ‘specials.’ Since many vari-
TI Cycles in the ‘specials’ category. Besides, the sales ants of the same bicycles are produced, significant poten-
volume of ‘standards’ by Hero Cycles is higher than that tial may exist to streamline procurement, production, and
of TI Cycles. This means that while Hero Cycles is able dispatch to reap variety of synergies.
to simultaneously compete in the ‘specials’ and ‘stand- Finally, the company needs to work more closely with
ards’ market, TI Cycles is not able to complete simultane- its dealers and vendors. Apart from providing better tech-
ously in the two segments. This raises the issue of reap- nical expertise, the focus should be on building relation-
ing some synergies of producing the two categories of ship capital with the dealers as well as vendors. Its major
bicycles together which TI Cycles is not able to do while competitor, Hero Cycles, seems to derive a major advan-
its major competitors (especially Hero Cycles) are able to tage from such capital. As these relationships mature, the
do. These synergies may emanate from economies of critical customer data would automatically start flowing
scope and scale in purchasing, manufacturing, and dis- in and help in the product design and manufacturing
tribution. This issue needs to be analysed to gain more process.
insights into the sources of competitiveness of the com- In the long run, the company must try to exploit the
petitors of TI Cycles. synergies between domestic and export markets. This
would necessarily mean production of medium/high
IMPLICATIONS range of bicycles for the developed country markets.
On the basis of the analysis so far, a few elements of short- R&D activity will need to be geared up to enhance the
term and long-term strategy seem to emerge. While the company’s absorptive capacity of new technologies to
short-term measures are focused on improving and con- penetrate the high-end markets in the West. A cursory


reading of business articles would suggest that a R&D sition were thwarted among other things by a fluctuating
focus on new materials may be useful. Significant exchange rate. Therefore, as a short run measure, the
upgradation of product development and manufactur- company should also lobby for some depreciation of the
ing process (suggested above as short-term initiatives) rupee. Such depreciation might increase volumes of ex-
would also enhance the absorptive capability and help ports for all suppliers and make the industry more vi-
the company buy, transfer, and adopt better technolo- brant. It has been argued that part of the competitive
gies. advantage of China emanates from strategically deval-
Moving up the value chain in the exports markets ued currency. Of course, the Chinese manufacturers of-
can partly be facilitated by higher exposure to these ten pay more attention to manufacturing systems than
markets. The company’s earlier efforts to make that tran- their Indian counterparts.

Salma Ahmed Ashfaque Khan
Senior Lecturer Manager (S&M)
Logistics and Information Systems Kale Consultants Limited
Aligarh Muslim University New Delhi
e-mail: salmaahmed6@rediffmail.com e-mail: Ashfaque_Khan@kaleconsultants.com

n the year 1951, TI Cycles in collaboration with Her changes. The issue to resolve is increasing profits through
cules Ltd & Motor Company of UK set up a plant in increased production and market share. The company
Ambattur in the suburb of Chennai to produce and initiated many changes such as change at manufacturing
sell complete bicycles. The company was organized into premises, work culture, spare parts management, etc., yet
functions each with a well-defined responsibility. It also it was relegated to the second position. It seemed that
had a separate R&D Department which catered to the incremental changes were not delivering the desired re-
need of new product development. New product design sults.
was handled by the General Manager – Marketing and
Vice President along with representatives from Product KEY ISSUES
Management, Product Development, Manufacturing, and An analysis of the situation at TI Cycles reveals a number
Purchase Departments. of issues and key questions that need to be addressed.
The company undertook the manufacture of stan-
dard items designed by its collaborator and its first ven- New Product Development
ture was a product named Hercules. Later, with the per- At TI Cycles, a separate R& D Department undertook the
ceived market shift and/or competition, it moved to pro- task of product upgradation, development of prototype
ducing premium cycles. This move was also an attempt as well as the development of the product. Concept test-
to expand the market. Its sales rose rapidly. ing, prototype testing, and sample testing were under-
On the other hand, related developments led to a taken in stages with different sets of groups. In short, it
situation where the company began losing its market had a reasonably sound system in place for new product
standings: development as well as a comprehensive and well-inte-
• Rise of competition (Atlas, Avon, Hero). grated team for development of new products.
• Introduction of low cost scooterette.
Product Category and Target Market
• Lower prices of competitors.
• Competition from moped category. It would be advisable for the company to divide the
• Lock-outs at its factories. market into two tiers:
• Lack of geographic presence. • Tier I: The basic offering would have the deciding
However, what is significant is that market opportu- factors as price, loading capacity, riding ease, and
nity exists which is indicative of increasing trends and ease of repair.
which needs to be tapped intelligently in the wake of the • Tier II: The attributes would be acceleration, design,


styling, and re-sale value. Dealer Management
Though it seemed to have got the categories correctly, it Successful dealer management rests on the number of
did not identify the attributes which characterized the tiers. dealers, loyalty of dealers, and the length of the channel.
In the present scenario, two broad categories of pro- TI Cycles has only a handful of dealers vis-à-vis its clos-
duct are in demand-standardized and customized. Prod- est competitor–Hero Cycles–which has 3,500 dealers. In
ucts for the former category would be sturdy, low-priced, such a set up, customer contact would be less thereby
and offered with standard/basic features. Products for affecting feedback. Further, CRM exercise cannot be
the second category would be offered with various mul- undertaken effectively.
tiple options and premium-priced. The market could be An effective role is played by dealers in enhancing
segmented into two: the image of a company in the minds of the consumer.
• Office goers, workers, and low income group who This is gravely missing. Dealer loyalty for the company
seek value for money. was not evident or dealers stocked other brands as well.
• Youth, trendy, middle and high income group who In addition, dealers also stocked auto-ancillaries and con-
could be classified as the “in-generation.” sumer durables.
Each product category would have its own supply Dealers are the final point of contact with the cus-
chain methodology. tomers. They are major influencers in the purchase deci-
Supply Chain Management sion. Therefore, it is necessary to enhance this level of
commitment. There is a definite scope for better bonding
Efficient supply chain management is a critical issue with the dealers in the company framework.
which is found lacking in TI Cycles’ present system of The only positive move by the company is the imple-
operation. mentation of cyclinics which are company-owned and
Demand Management have definitely increased the customer perception of the
Accurate prediction of demand is very critical for the organization.
success of a company. The situation at TI Cycles reveals Manufacturing Management
that there was excess in-process inventory in the plants. Hero Cycles outsourced most of its products to ancillary
The company produces two broad categories of cy- manufacturers while TI Cycles undertook long produc-
cles: standardized and customized. For standardized tion runs to produce complete products thereby increas-
cycles, demand is more or less certain, the features are ing in-process inventory.
common, and the dealers can maintain a certain stock of The company shifted from batch process to modular
the item even in an assembled state. For customized cy- process design. However, it could adopt flexible
cles, ascertainment of demand for different product op- equipments and machines which would support multiple
tions is somewhat different. Therefore, the dealers should parts being produced using the same set of equipments
maintain such products preferably in CKD condition to amounting to a reduction in cost. However, it still resorted
be assembled later on at their level. Alternatively, the to the old system of complete production run bringing
company can develop an efficient communications sys- inefficiency in the system. It should, therefore, adopt
tem to enable dealers to communicate orders directly to ancillarization as a strategy to gain country-wide pres-
the factory which can assemble and deliver the product ence.
to the customer within a short period of time. Though
this would mean increasing reliance on IT, this would Level of Integration
also enhance the accuracy of sales prediction. New product development starts with the generation of
For the ‘standard’ cycles, cost is the critical factor in- an idea. An idea may come up from almost anywhere—
fluencing the decision to purchase. Lowering costs customer, vendor, employee or even competitor. Most
throughout the supply chain–through mass production, organizations have a formal system in place to generate
economy in transportation, inventory, and increased and evaluate a product idea. Therefore, it is imperative
volume would go a long way in ensuring success for the for a company to integrate every entity in the supply
company. However, for the customized product, respon- chain. However, all product ideas are subject to screen-
siveness of the supply chain would influence the decision ing and evaluation. TI Cycles also undertakes concept
to purchase. development and testing. This is a positive move made


by the company. would be through the ‘standards’ category but giv-
In a multi-product organization, activities should be en the rise of disposable income in the rural sector as
more process-based than function-based. TI Cycles crea- well, ‘specials’ would also co-exist.
ted functional silos where responsibility was well defined • Incr easing sales in urban ar
Increasing eas: ‘Sports, health’ are
and distinct. the bandwagons to jump on.
The company should not only move towards func- • Expanding the tar get gr
target oup: The cycle manufactur-
tional integration or internal integration (integrate market- ers have been focusing on the market in the category
ing, sourcing, product development, quality, etc.) but of 5 + years depending on the demographic/ psych-
should also promote external integration, i.e., integrating ographic profiles. Given this, the market could be
with dealers and customers too. An integrated approach extended to ‘toddlers’ and old-age/retirees. Toddlers
would be a better fit for such an organization where around the age of three years could start using the
change is the order of the day and a new product idea at cycles (with the requisite changes). Similarly, the old
any point in the supply chain can be very conveniently people at the urban centres could be targeted by cit-
tapped. TI Cycles should form a network of relationship ing health reasons. Both the target segments require
communicating, interacting, and making integrated de- a customized product. Similarly, there is a need to
cisions. expand the market in countries like Bangladesh,
Nepal, and Bhutan which given the similar demog-
Expanding Market Share
raphy at the rural/semi-urban centres would require
TI Cycles could adopt the following strategies for increas- a ‘no-frills’ product similar to the ‘standards’ prod-
ing market share: uct of TI Cycles.
• Shift fr om standardized to customized pr
from oducts:
products: • Contract manufacturing: Though China has been the
Though the company has a ‘delayed logistics’ in place leader in manufacturing cycles, TI Cycles could also
(i.e. CKDs at the dealers’ end), the same could be explore the possibility of manufacturing cycles for
extended to designs, colours, accessories (more at the leading cycle manufacturers of the world.
the urban centres than rural). This would not only • Financing: Though a cycle costs around Rs 2,000 - Rs
reduce the supply chain costs but in the process 3,000, the company could arrange for loans through
would lead to an increase in the sales of accessories. banks or credit societies for the rural sector to give a
• Incr easing sales in rural ar
Increasing eas: The company’s larg-
areas boost to its sales.
est market is South India. Given the economic devel- • Spar e-parts: From the experience of the car manu-
opment (i.e. higher growth rates) in the southern facturers, the profit for these companies would be
states, people are more likely to buy mopeds/mo- mostly from spare-parts sales and servicing. Though
torcycles, scooters, etc. Hence, demand for cycles TI Cycles has rightly initiated ‘cyclinics,’ there is a
would come from the hinterland and from North and need to expand the network to other products as
East India. Even its initial thrust to the rural areas well.


Atanu Ghosh
Associate Professor
Shailesh J Mehta School of Management
Indian Institute of Technology
e-mail: atanu@iitb.ac.in

I Cycles was facing problems of stagnant sales The company started in 1951 with a fully integrated
in 1996-97, driven by falling export volume, shift plant for manufacturing of parts to assembly of final
in consumer preferences, increased competition product without any outsourcing of components. Though
in bicycle market, and relatively weak distribution net- it established its name and reputation for high quality,
work in the domestic market. strong, and durable product, it lost its status of largest


producer of bicycles to Hero Cycles, a competitor from as its price for such products was only 10 per cent higher
North India. Hero Cycles built leadership positions pri- than Chinese products.
marily on the basis of lower prices which was possible The striking change in consumer preference in the
due to outsourcing of parts from independent manufac- domestic market is reflected in the gradual shift from one
turers and dedicated units promoted by them. TI Cycles standard model for office goers and workers to many
had a 10 per cent unfavourable cost differential against variants (such as workhorse, sports and racing, luxury)
other key competitors due to having an integrated plant targeted to different uses and user segments.
and also higher wages. With the change in manufacturing system from batch
One of the clear options for TI Cycles was to move process silos to five modules, the problems associated
from in-house manufacturing to outsourcing of parts to with increase in number of models, in-process inventory,
cost-effective, independent manufacturers of parts and long manufacturing lead time, inaccurate delivery, and
retaining quality assurance, final assembly, and painting poor tracibility could be minimized. In order to improve
at their own plant, particularly, for the price-sensitive its performance in these areas, TI Cycles should have
range of ‘standard’ products. This would pose a clash deployed information technology with ERP and SCM to
with family values of exhibiting human consideration in integrate its information system not only within the or-
treating people in managing its business, unless the loss ganization but also with its supply chain.
of jobs could be protected by increase in sales volume of The penetration of bicycle being at a very low level
‘specials’ category of premium-priced products that could compared to many other countries at the same level of
absorb in-house cost structure. This would have still been economic development, there is scope for market devel-
a minor drifting from values than to cause disaster for the opment. The growth rate of 26 per cent in 1994-95 and
whole organization and its employees. 10.8 per cent in 1995-96 is indicative of potential demand.
The availability of designs and drawings from its The market shareholding by the bicycle manufactur-
collaborator Hercules Cycles & Motors, UK, probably ers shows that TI Cycles has lagged behind the competi-
resulted in lack of own efforts in designing and innovat- tors in all the regions except in the South. The Northern
ing new products. It introduced “specials” category with and Eastern regions that accounted for 57 per cent of do-
products of sleek, wire break, multiple colour options at mestic market were not focused adequately and devel-
premium prices in 1969 as a leader, but became a follower oped successfully to yield benefits. Similarly, the company
of the market leader Hero Cycles while introducing “Street failed to garner decent market shares in rural and small
Cat” in the sub-category of MTBs. towns that have close to 70 per cent of market demand.
With the changed market environment both in do- It is evident that the company’s product mix was not
mestic and international market, TI Cycles has no option in synch with the current industry trend. The ‘specials’
other than to focus on domestic market in a more planned category was primarily a product for urban market which
manner. It is quite clear from the facts that the decline in generated only 30-35 per cent of the total demand. There-
total demand in major EU markets by 6 per cent, total fore, concentration on that product to the tune of 50 per
import to EU by 20 per cent, import from India by 40 per cent of its volume deprived it from generating higher
cent, and falling import share for TI from 57 per cent to 45 volume of business in ‘standards’ category from rural
per cent was indicative of change in consumer prefer- areas and small towns. That could have provided more
ences in EU. Therefore, it was unlikely to improve TI cost advantage in an integrated plant of high capacity of
Cycles’ position by any additional efforts. The other ma- production volume.
jor threat to dissuade the company from focusing on in- With the image created as a producer of high quality
ternational market in general was the cost competitive- durable product, the company is in a position to launch
ness of the Chinese products (40-60 % cost disadvantage mopeds/scooterettes in the domestic market to keep pace
in some categories like Kids and MTBs). with current trends. It may even be easier for it to find a
TI Cycles could possibly identify overseas markets technology provider as collaborator and come up with
for ‘standard’ category where the total cost of ownership the products with technical superiority.
of its products could be the lowest compared to Chinese If, for paucity of resources, TI Cycles is forced to
products due to favourable differential cost of transpor- sustain its current level of business with more focus on
tation, logistics, and import duty rate. This was possible ‘specials’ rather than looking at any growth avenues, it


still needs to examine its market responsiveness. For prod- market in a more responsive manner, reduce inventory
ucts of ‘specials’ category with large number of variants level of slow/non-moving products, and divert attention
and many user groups, it may be prudent to capture cur- to products in demand. Linking the supplier in the infor-
rent demand pattern through POS data which could be mation network would further improve total responsive-
extremely useful to study the trends, offer products to ness of the network to market requirements.

Manmohan Rahul Shalini Rahul
Assistant Professor Assistant Professor
Institute of Management Studies Institute of Management Studies
Dehradun Dehradun
e-mail: mmarahul152@yahoo.com

I Cycles is a typical example of a traditional SHIFT IN PREFERENCE IN DOMESTIC
Indian firm that has taken its share of pie during MARKET
India’s post-Independence economic growth in a The cash cow for TI Cycles remained the ‘standard’ brand
virtually monopolized market and is now unable to keep for long with ‘special’ category adding good support to
a control on its declining market share and profits due to it. With the entry of Hero Cycles, Avon, and Atlas Cycles
many hugely successful entrepreneurial establishments. from the Northern India-based entrepreneurs, the cycle
TI Cycles was started with an honest zeal and dedi- scenario in India changed dramatically, TI Cycles being
cation by the Chettiars family in a suburb of Chennai and the prime sufferer. The introduction of low-cost and load
it became one of the leading and known cycle manufac- bearing capacity cycles being manufactured by Atlas,
turers in India. The company’s growth can be largely Hero Cycles, and Avon caught the attention of the peo-
explained by the dominance of time in 1950s when post- ple. These companies were quick to gauge the gap in the
Independence era opened new opportunities for busi- youth and children segment and were successful in bring-
ness houses in all infrastructural development. The need ing out cycles targeting these segments. TI Cycles some-
gap was large in rural and urban areas and market was how always adopted a second lead and in this process
under-developed. The basic necessities of life were un- lost the crucial timing and market share. The company,
available to 80 per cent of the consumers who formed a therefore, should upgrade its R &D cell and ensure that
part of rural India. The basic mode of transport during the marketing cell also adopts a proactive approach.
that period was primarily a cycle and it still remains the
same even after 55 years of rural development. The gap COMPETITION
as shown in Figure 1 shows that it is largely purchased by Early seventies saw TI Cycles’ ‘Hercules’ brand doing
people in rural areas as compared to urban customers. very well in the market and adding value and credibility
to its total sales. In course of time, however, the compa-
Figure 1: Rural Vs Urban Growth ny’s process of innovation got derailed and this aspect
was not taken up seriously. Other entrepreneurs perceived
urban this gap in domestic market and came up with innova-
tive cycles in a big way capturing the market share of TI
Number of cycles sold

8000 Cycles. The owners of Hero Cycles, based in Ludhiana,

started as a low-cost cycle manufacturer and, within a
short span of time, Ludhiana was turned into one of the
largest producers of cycles and machine parts. Atlas and
1000 Avon also capitalized on this opportunity and outsourced
1985- 1986- 1987- 1988- 1989- 1990- 1991- 1992- 1993- 1994- 1995- 1996- nearly all cycle parts from Ludhiana-based manufactur-
86 87 88 89 90 91 92 93 94 95 96 97

ers. This created a difference of nearly 10 per cent in cost
which was noticeably big for customers.


Late eighties and early nineties were also the period company already has a strong base of activities, which if
when 50cc two wheelers were introduced, popularly revamped and strengthened, could be positioned as dis-
known as Mopeds, Scooterette, etc. Hero Mopeds with tinctive from the competitor. Some of these features are:
the name of Panther and Pacer and Kinetic’s Luna were • Strong dealer network.
very popular in the market and were very successful for • Number of sales representatives.
a decade. Hero as a brand got established in the market • Brand awareness among customers.
and the company’s promotional activities benefited the • Variety of models introduced in the market.
company in both the cycle as well as the two-wheeler On the other hand, the company would have to defi-
sector. nitely improve upon communication strategy (advertise-
ments, sales promotion, and publicity) and support with
Reaching Domestic Consumer
dealers. The first step that the company could take is to
Though TI Cycle’s representation in towns and cities is re-launch the cycle based on a concept. Being the oldest
adequate, it needs to evaluate the sales target achieve- player in India, it could create a feeling of nationality
ment. It can also categorize the dealers according to their among the users of ‘standard’ category and position its
performance and find out the reasons for the shortfall in cycle as the ‘cycle of the nation.’ This in a way reflects the
sales as this will help the company to get aligned with its values of the company as well as how it has incorporated
sales forecast and production. Due to change in customer the suggestions and has taken care of customers’ com-
preference, the company is facing a decline in demand plaint over a period of time.
for the ‘standard’ category of cycles. It can undo this by In case of ‘special’ category, being already the leader,
introducing special credit schemes in this category. This it needs to sustain this position and has to be quick in
will help small buyers, especially in rural areas, to get a addressing the need for change. Negotiating with deal-
cycle at minimal cash as down payment who can then ers to keep the company’s cycles as an exclusive brand
pay the loan in small installments of Rs 100 per month. would indeed support the differentiated player image.
The company may also introduce a scheme to its dealers To supplement this, it can also open exclusive showrooms
to make compulsory purchase of ‘standard’ along with for their products in cities. Regarding exporting cycles,
‘special’ in any pre-specified ratio by the company. The the company should target South America, Africa, and
initial resistance may be high but can be handled if prop- East Asian countries for better results.
erly communicated by the sales representatives.
The authorized spare parts sales and service show- TIME FOR REALIZATION
room is an innovative idea and must be pursued in all Indian cycle industry is facing a crisis presently with direct
important towns of India. threat from the ever-growing low cost Chinese cycle
manufacturers. By comparison, Chinese products are
Strategies for Competitive Advantage
smoother in looks and shape and innovative in design.
TI Cycles is now facing a location disadvantage as com- The price difference can be up to 30 per cent which is very
pared to Hero Cycles, Avon, and Atlas as these are locat- large as compared to other Indian cycle manufacturers.
ed in North India from where they outsource their cycle Moreover, cycles are considered derogatory by the
parts. Out of these three, Hero Cycles has gained the max- youngsters in urban areas and are only owned either by
imum advantage becoming a low-cost leader in cycle in- people of very lower income group or kids.
dustry. The other two players, Atlas and Avon, though TI Cycles needs to re-evaluate the current status
having a strong presence, are basically emulators or fol- dogma of Indian consumers and re-establish the concept
lowers of Hero and TI Cycles. of cycles in consumers’ mind. The primary aim for cycle
TI Cycles should follow a differentiation strategy on companies now is not only sales maximization but also
features that can be perceived as unique by customers. The changing consumer mindset.

A definition is the enclosing a wilderness of idea within a wall

of words.
Samuel Butler


Some books are to be read only in covers reviews of current books on
parts... some to be read wholly
with diligence and attention.
Francis Bacon


Fukuda-Parr,, Sakiko and Shiva Kumar
Kumar,, A K (eds.)
New Delhi: Oxford University Press, 2003, pp 370, Rs 675

his book of readings offers a splendid intellectual fare on the concept,
design, and use of the term ‘human development’ (HD) as it has gained
currency since its adoption by the United Nations Development Pro-
gramme (UNDP) in the late 1980s as a part of its global role and responsibility.
The contributors to the volume have all played major roles in the evolution
of concepts and measurement of HD, examination of the policy implications
of the HD approach, and institutionalization of the Human Development
Reports (HDRs). HDRs are now globally recognized as a crucial aid in meas-
uring, monitoring, and managing socio-economic development.
The rationale for treating human beings as ends for social development
is amply provided in the first section of the book which is devoted to concep-
tual foundations. The contributors to this section include outstanding social
scientists such as Mahbub ul Haq, Amartya Sen, and Paul Streeten who carved
out ideas and approaches in HD and presented their relevance in the contem-
porary global society against the backdrop of prevalent economic theories
and prescriptions. The philosophical foundation of the new approach lies in
the concern for the human being. Human capability has traditionally been
treated as a commodity relevant for production of goods/services that con-
tribute to the values of GDP/GNP as the manifestation of a society’s eco-
nomic standing and development. This view is challenged by the HD-ori-
ented scholars. Social science, they say, stands for enrichment of human life.
Human capability is a resource for pursuit of such enrichment of life in terms
of what a human being values most. Human beings should have freedom and
opportunities to choose a way of life. Poverty implies denial of choice. Those
who are denied freedom of choice for their gender, race, etc. deserve special
Human Development attention in development discourse and efforts. Freedom of choice for this
Fiscal Reforms purpose is not confined to economic freedom (access to material resources).
Economic Development It extends to participation in decisions governing one’s situation and free-


dom to act as an equal citizen. As a comprehensive devel- various segments of the global society. Chapters consti-
opmental approach, HD embraces economic, social, and tuting this section are extracted from the major policy
political freedom and rights for the deprived. perspectives guiding the various HDRs. While the over-
This HD approach and its social dynamics are com- all picture of HD reveals improvement across states and
petently and lucidly examined in detail in the nine chap- regions, the trend is clearly iniquitous with the rich get-
ters of the first section. It became the driving force of the ting the lion’s share of gains in health, education, and
HDR which was launched by UNDP in 1990 and has since access to basic resources for good living. Persisting gen-
served as signal of relative socio-economic health among der inequalities everywhere raise issues of how women
the states across the world. HDRs, in turn, have cumula- and their work are valued in society. The need for dealing
tively led to refinement, modifications, and adaptations with this problem in the political rather than the eco-
in the conceptual base of the HD approach. The measure nomic arena is underscored. A similar view is expressed
of the state of human development for a state, region or on problems of poverty and deprivation which should be
its subset is computed to yield a Human Development treated in terms of disparities in opportunities rather than
Index (HDI). The authors have shown how the annual incomes. Elimination of poverty needs to be managed
HDR-HDI exercises have led to progressive realization of with full participation of the poor. Some well-orchestrated
HDI as too simple for its larger purpose. They have myths about the role of the poor in environmental degra-
stressed the need to deal with a variety of complex yet dation are questioned. It is stressed that the poor cause
relevant factors such as the social context of an economic relatively less damage to environment but bear a larger
value, current vs. future value of resource-allocation, and amount of blame for it. A culture of caring for the weaker
the grounded politics of human rights or poverty reduc- sections of society at various levels is advocated. A corre-
tion. sponding suggestion is the need for an inclusive democ-
The second section of the book is devoted to issues racy for a society to bring the values and efforts in the
on measurement of HD and construction of HDI. In the kind of social equality, justice, and quality of human ex-
face of recognition of HD being a product of a large vari- istence that the HD approach stands for.
ety of socio-economic forces, HDI has been primarily Overall, the book under review should serve as a
computed as a composite measure of achievement in three precious handbook of history, state of art, and future
aspects: longevity, education, and income as a sign of prospects of the HD approach. This approach for now
command over resources needed for a decent living. Prob- stands at the intersection of an intellectual dream and
lems relating to methodology, data availability and com- social reality. A gradual movement of the reality towards
parability, statistical rigour, etc. are addressed at length the dream is discernible although slidebacks are not un-
by various contributors. The merits of aggregation and common. For a long time, HD is likely to remain an un-
disaggregation of HDI are examined in their statistical as finished agenda of the global society and its components.
well as socio-political contexts. Refinements and appli- This book possesses vital clues necessary to chase the
cation of measurement are discussed against the back- continuing agenda. It also contains pleasurable sparks of
drop of progressive experience. Criticisms from various enlightenment on how knowledge and intellect can com-
quarters are examined and answered. There are enlight- bine to drive human beings to strive to make us all more
ening and insightful descriptions of attempts to construct human. The content of information and argument occa-
new indices of the sensitive aspects of development such sionally overlaps or is reiterative between chapters. That,
as poverty, gender inequality, and political freedom. There however, is part of the culture of a book of readings on a
is also discussion on how HDI measures can be doctored single theme.
at regional or state levels for creating false images or for
N R Sheth
political gains. With all its limitations, however, HDI
continues to be an important measure of development (Retired) Professor
for a social or political entity. Personnel and Industrial Relations Area
The third section focuses on policy implications of Indian Institute of Management, Ahmedabad
the HD approach and HDRs at the global level and for the e-mail: shethsnad1@sancharnet.in


Shome, Parthasarathi
New Delhi: Oxford University Press, 2002, pp 260, Rs 495

ndia’s public finances are in a very bad shape. The The author proposes a fiscal reform strategy for In-
combined fiscal deficit of the central and state gov dia, comprising both tax and expenditure reform meas-
ernments alone is now 10 per cent of the GDP. This ures, the objective of which is to substantially reduce the
itself is high but if one integrates the finances of the cen- deficit and develop a public debt policy that does not
tral and state governments with those of the local gov- imply a high interest burden on India’s public finances.
ernments and public enterprises to get a measure of In- He warns that as the current public finance crisis can
dia’s public sector deficit, then the number would be much cause an economic crisis, India’s performance on the
higher – about 14 per cent of the GDP. India’s public sec- public finance front needs continuous vigilance.
tor deficit is a substantially better measure of the current While legislating an appropriate tax structure is ab-
state of India’s public finances than the combined fiscal solutely necessary, it is not sufficient to ensure efficiency
deficit of the central and state governments in the coun- in resource allocation, equity in income distribution, and
try. revenue productivity. What also needs to be ensured is
However, one may argue that deficit is not necessar- that tax administration practices reflect the objectives and
ily a bad thing. It all depends on the resources available intentions of the tax legislation.
for financing the debt service. Consider, for example, some The author makes a strong case for tax policy and
numbers that the Finance Minister has put in the Govern- administrative reforms to ensure minimization of the so-
ment of India’s 2003-04 budget. He has budgeted a debt called taxpayer-tax official nexus in India. The discretion
service of Rs 2885.99 billion for 2003-04 while the resources available to tax officials under the regime of India’s tax
available for financing this add up to only Rs 421.54 bil- expenditure provisions (that deliver fiscal benefits
lion (revenue receipts available to finance debt service: through the tax system) and the tax administration sys-
Rs 109.31 billion; recoveries of loans: Rs 180.23 billion; tem which allows the clustering of several tax adminis-
and privatization receipts: Rs 132.00 billion). This means tration functions under a single officer have created an
that he has budgeted to finance as much as 85.4 per cent environment which has allowed this taxpayer-tax offi-
of the Government of India’s debt service through bor- cial nexus and the associated rent-seeking behaviour to
rowings and other liabilities. This certainly is not a happy thrive in India. Tax officials pay huge bribes to arrange
situation; indeed, this reflects the poor quality of eco- their transfers to locations with relatively large number
nomic management at the Government of India level. of big assessees who can afford to pay bribes running into
The rest of the public sector in India is not doing any large amounts. The Economic Times of May 26, 2003, in an
better either. editorial entitled “Transfer Pricing,” has revealed that
India currently faces a crisis on the public finance “some corporates also actively encourage and help IRS
front. Shankar Acharya, in an article entitled “How to (Indian Revenue Service) officials to seek plum postings
Avert Impending Fiscal Crisis” (The Economic Times, Feb- at key ports in Mumbai, Kandla, etc. By simply changing
ruary 6, 2003) has revealed the real face of this crisis: or overlooking the description of goods exported or im-
“….disappearing rural road networks (no money for ported, tens of crores of rupees get saved. This then gets
maintenance), hugely under-utilized irrigation systems distributed among the bureaucrats, politicians, and mid-
(same reason), school teachers without books and black- dlemen.”
boards, health clinics with no medicine, disintegrating Nobody knows the damage that this taxpayer-tax
water and sanitation systems, electricity boards playing official nexus has done to the revenue productivity of
musical chairs with massive arrears while supplying lit- India’s tax system. But one can argue that this would add
tle power, and so on.” How should India respond to this up to at least four per cent of India’s GDP, roughly Rs one
crisis? The book addresses this extremely important ques- trillion a year now. Additional revenue receipts of this
tion. order can help India a lot in managing her public finance


crisis. This book discusses in detail the tax policy and This is an excellent book and I am sure that it will be
administration reform measures that need to be put in an asset for policy-makers, fiscal experts, and students in
place to minimize the taxpayer-tax official nexus in In- India.
dia. One hopes that the embarrassment which the recent
Anand P Gupta
shocking cases of corruption in the revenue service have
caused the Government of India will serve as a trigger for Director, Economic Management Institute
it to act and take appropriate measures to minimize this New Delhi
nexus. e-mail: anand@EconomicManagement.com


Panchamukhi, V R
New Delhi: Bookwell Publications, 2001, p 259, Rs 450

he book under review is a collection of seven tical jugglery. The sooner India gives importance to this
thought-provoking and enlightening essays writ productivity aspect of saving and investment, the better
ten in recent years describing and evaluating di- will be the overall growth and development perform-
verse and hitherto untouched aspects of the process of ance. The author, of course, avers ‘that it is difficult to do
development in the Indian eco- nomy. justice to all the aspects of the subject in a short chapter
The first essay is titled “Mobilization of Domestic like this.’
and External Resources for Development: Lessons from The second essay on the theme “India Vision 2020”
Indian Experiences.” It is rich in information and rigor- portrays a visionary profile of emerging India by the year
ous in analysis. It selects five important themes such as 2020 and beyond. At the outset, the essay scans through
savings and investment, banking and financial system, a few illustrative, alternative perceptions about the world,
government finances, challenges of the external sector, its nature, and the contours of the human society in the
and the problems of economic stability. Each section in year 2020. It identifies a few core issues and concerns
the essay describes past trends and the present status of while evolving a visionary profile for India and discusses
the theme/ issue under discussion, does the diagnosis, them ‘in a telegraphic manner.’ The author hopes that the
and presents policy suggestions. For instance, while dis- essay will provoke all concerned to work out a new pack-
cussing the dynamics of the various diverse and complex age of development policies and strategies for India to
segments of the Indian financial system, the author un- realize the cherished goals and aspirations of the com-
derscores the need for vigilant policy-makers and an ef- mon man of the country.
ficient surveillance system as increasing financial inte- The third essay “World Trade Organization and In-
gration may increase the inherent instabilities in the In- dia: Challenges and Perspectives” brings out the chal-
dian economy. lenges faced by India in the new trading environment
Further, the analysis of the trends and the patterns of under the WTO and the policies it should adopt in the
savings and investments over the period 1950-51 to 1998- days to come. The author is not very convinced about the
99 helps draw certain important ‘lessons from the past benefits for developing countries in general and India in
experience’ and suitable guidelines for effective policy- particular from the new trading system. According to him,
making. While drawing such lessons, the author has com- the new trading system ‘seems to favour the relatively
pared India’s saving and investment performance with more powerful actors and leaves the weaker segments of
other developing economies which are known for their the world economy to fend for themselves in the emerg-
spectacular growth performance. However, the author ing competitive, globalized, market-based world eco-
could have compared the trends in productivity as well. nomic environment.’ Such skepticism regarding the new
It is very important to ensure that Indian economy expe- trading system is reflected at other places in the book
riences a declining incremental capital output ratio (ICOR) when he writes that, ‘A reflective analysis of the provi-
and our policy-makers refrain from planning with statis- sions of WTO seems to suggest that these have been de-


signed to suit the interests of the MNCs from the eco- is one important dimension of development process that
nomic power groups.’ should no longer be neglected. The author argues that
The author argues that India should operate from our shaking and shrinking faith in the classical theories
the position of strength with a professional attitude and and principles of economics and management is one of
proper preparation in the new trading system under the the causes of decadence in the socio-economic and politi-
WTO. To deal with the challenges and to exploit the op- cal status of India and also in the world economy. He,
portunities arising out of the new trading system, India therefore, urges us to use our own classical principles of
needs to have intensive preparation for effective negotia- development and management as a basis for designing
tions in the ensuing review meetings on various issues our developmental strategies for maximizing the welfare
like agriculture, services, textiles, etc. Our negotiators of maximum number of people. The author recognizes
should have clarity in perceptions regarding our goals that it is not feasible to improve the welfare of all in one
and development strategies, mapping of strategic options, go or by single policy action. At many places, while sug-
identification of bargaining points and negotiation strat- gesting to be cautious vis-a-vis the process of liberaliza-
egies, and effective coordination with like-minded coun- tion and globalization, the author rightly emphasizes the
tries and negotiators. need for social safety mechanism to safeguard the inter-
The fourth essay “Five Recent Paradoxes and Anoma- est of the poor and to nullify the adverse effects of the
lies of Economics” describes a few situations of contra- reform programme and policy on them.
dictions that are found in some of the accepted economic The sixth essay on the topic “Econometric Research
models and theories. This intellectual exercise provides and Public Policy” establishes the fact that the ultimate
avenues for inquisitive analysis and intensive quantita- goal of all scientific enquiry is ‘facilitating policy-mak-
tive research. ing at the government level and decision-making at the
In the fifth essay, “Millennium and Economic Chal- corporate level,’ be it via knowledge enhancement or ex-
lenges,” the author presents a brief and sketchy descrip- planation of a phenomenon or demystification of the un-
tion of the status of India in the socio-cultural and eco- known. Giving a brief historical perspective on the topic,
nomic fields during the last two millennia of the Chris- the author raises some pertinent questions in regard to
tian era. This essay really reflects the author ’s erudition the contemporary econometric research in India. Accord-
on indology and Indian classical thoughts and principles ing to him, the potential of econometric research as an aid
of economics and management. The author rightly ob- to policy-making has not been fully utilized in India. There
serves that the thoughts and paradigms that have been are still many inadequacies in the scope and the content
perceived and practised in the more powerful economic of econometric research as a tool for policy-making which
societies have mentally and mechanically enslaved us. call for attention of the professionals and the policy-mak-
Western economic thoughts have given more em- ers. Adequately analysing the various issues involved,
phasis on the material aspects of life. It emphasizes the author presents some important practical suggestions
maximization of consumption, capital formation, and for improving the relevance and usefulness of economet-
profit without recognizing the role played by the ‘values’ ric research for policy-making.
in determining the welfare of the economic agents. In- The seventh essay focusing on the theme “Resource
dian classical theories of development and management, Imbalance, Lifestyle, and Economic Crisis” gives a unique
in contrast, conceive welfare of mankind both in terms of and new perspective as it recognizes the role of ‘resource
material prosperity and spiritual discipline. The four goals imbalance’ and ‘lifestyle’ as the basic causal factors for
of life, namely, Dharma, Artha, Kama, and Moksha provide crisis situations. The author presents his thesis in relation
an integrated framework for efficient utilization of re- to the East Asian crisis of the 1997 and argues that the
sources for fulfilling the basic needs for everyone in the economic crisis was the result of ‘resource imbalances’
society and for realizing maximum capital formation. The caused by wrong ‘lifestyles’ adopted by each economic
classical thoughts have given emphasis on managing self entity in the East Asian economies. It is interesting to
in a value-based framework while the modern manage- note the author ’s observation vis-à-vis lifestyle-and value-
ment science speaks more about managing materials and related causes leading to the South East Asian Flu which
the men rather than oneself. were quite different from the causes listed in some of the
According to the author, ‘restoring values in society’ recent articles and papers.


In the same essay, the author, taking cue from the and thought-provoking. Specifically, the fifth and the
Indian classical thought, provides an interesting ‘model seventh essays seem to reflect the author ’s many years of
of resource balance with shifts in lifestyles’ and suggests intellectual cultivation and culture. Another interesting
that ‘lifestyle’ should enter as an explicit variable in aspect in the author ’s presentation is that while running
monitoring and influencing the resource balance situa- the discussion in a positive economics framework, there
tions. Of course, the ‘model of exchange entitlements’ of is sometimes a sudden but apt and enjoyable shift to a
Amartya Sen, explaining the poverty scenarios in the normative mode without discontinuity in thoughts. The
world, does recognize lifestyle as a variable in welfare book will be very useful for researchers, teachers of eco-
economics. nomics and management, professional econometricians,
To conclude, this book is a fountain of new thinking. and policy-makers.
At a time when the relevance of the extant theories and
stra- tegies of development is at stake, the book will be a Raman K Agrawalla
catalyst in the continuing search for a new paradigm of Associate Professor, Economics
development for India, relevant and suitable to its social, Apeejay School of Marketing, New Delhi
economic, and cultural needs and milieu. It is really rich e-mail: raman_a@rediffmail.com

The world is too much with us; late and soon,

Getting and spending, we lay waste our powers:
Little we see in Nature that is ours;
We have given our hearts away, a sordid boon!
This Sea that bares her bosom to the moon;
The winds that will be howling at all hours,
And are up-gathered now like sleeping flowers;
For this, for everything, we are out of tune;
It moves us not; Great God! I’d rather be
A Pagan suckled in a creed outworn,
So might I, standing on this pleasant lea,
Have glimpses that would make me less forlorn;
Have sight of Proteus rising from the sea,
Or hear old Triton, blow his wreathed horn.
William Wordsworth