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AUDIRE
IIM ABC Consulting Review
Audire is a joint initiative of the student consulting clubs at IIM Ahmedabad, Bangalore & Calcutta.
The IIMC Consulting Club aims to provide opportunities for the students to
participate in live consulting projects. The club arranges various
networking events to enable students to interact with the industry.
Lastly, it organizes consulting games, quizzes and case competitions to
enhance the skills of the students indirectly preparing them for the
consulting industry. The club can be reached at Expert View:
consults@email.iimcal.ac.in "F-E-R Whom the Bells Toll" by
Chris and Ashish, Bain & Co.
Sponsor
Editorial Note
Dear Readers,
We are very excited to launch Audire - the IIM ABC Consulting Review, joint effort of the consulting
clubs at the top three management institutes in India - Indian Institute of Management at Ahmedabad,
Bangalore and Calcutta. However, we would not like to rationalize the introduction of yet another
consulting magazine with long explanations of how it is different from all others out there. That is
something that would become clearer over time and something we aim to achieve with the quality and
relevance of our content, and the depth and incisiveness of the articles. What makes us confident of
being able to do so, is the talent pool from which we draw our resources. This magazine has an
enviously bright and large talent pool comprising of students and faculty at these premier institutes.
Further, with expert inputs from the industry, such as the ones coming from Bain & Co. and UAE
Exchange in this inaugural issue, we know we have a platform that brings together the best minds from
both academia and industry to share insights regarding the most challenging business problems of the
day.
However, what we do want to communicate is the philosophy behind this magazine at this point of
time, which is also reflected in the choice of the name. Audire is a Latin word which means “to listen”.
We believe that a good amount of mess that currently the entire globe finds itself in can be attributed
to our inability to adequately recognize and respond to signals of impending trouble and to changes in
the dynamics of the environment where we operate. That is because, we, delirious in our success and
deafened by the noise of self directed applause, failed to listen closely. And it is time we did so, it is
time we lent our ears to listen to realities on the ground and act accordingly. Our magazine intends to
showcase work that closely analyzes these realities and changes in various sectors, industries,
functions and geographies. The current edition includes articles across sectors such as
pharmaceutical, telecommunications, chemical, solar energy and rural infrastructure and this breadth
shows our commitment towards the claims made above.
We are thankful to the faculty members and students at IIM Ahmedabad, IIM Bangalore and IIM Calcutta
and our sponsors, UAE Exchange, who have helped us in making this magazine a reality. A special thanks
to Padmashree Dr. B.R. Shetty, Managing Director, UAE Exchange, Mr. Chris Zook, Partner at Bain &
Company, and Mr. Ashish Singh, Managing Director at India office of Bain & Company for contributing
their views for our magazine. Please feel free to send in your valuable comments at
Audire.IIMABC@gmail.com
Thanks,
Team Audire
Editorial Team
Guest Editorial
Can we be ants?
An interesting morsel of information on the animal world, once encountered, seems to have come back. Body
temperature of ants changes in response to the atmospheric temperature. In winter, it falls so greatly that
their movements grow sluggish, and most species of ants eat a large amount of food in autumn to put on fat,
thereby allowing them to go without food through the winter. That leads to an interesting question which we
can ask ourselves these days …can we be ants?
Our world today faces a similar situation as the ants. Winter has dawned on most global economies…in varying
degrees of magnitude. And so like the ants, we have grown sluggish, worried about the winter getting even
severe. We talk about budget controls, frozen recruitments, and even of layoffs. But can we afford to be
ants, living without food till spring comes? The answer is 'no', because maybe, we haven't eaten enough during
the autumn as we thought.
Are these damage controls good enough to ensure that we wades through the winter to be strong enough for
the next season? The answer is 'no' again. Smooth sea never makes good sailors! This old saying holds more
truth these days when the markets are down and the survivability of businesses and individuals are in
question. This is the time for firms to express solidarity with their employees and vice-versa.
Year 2009 is not going to be an encouraging one for the financial sector, as the affect of the global financial
crisis, which shook USA in early 2008 and led to the closure of many giant firms, is sure to last for some time.
Than being ants, let's start looking at the brighter side of things, for this dark cloud has its silver lining too.
Consumers, employees and the organisations themselves can benefit well during an economic recession.
The market is cleansed, separating the wheat from the chaff. Organisations with good fundamentals alone
would survive the holocaust. Speculation in the market goes southwards, and we tend to look at commercial
promises and propositions more realistically. Consumers and the market as a whole learn the valuable lesson
that every unit of money saved is every unit earned, which would help them live within their means. This
improves the liquidity of individuals and the market as a whole. Financial institutions look for more funds to
roll and we get more from the money we save.
ii
Well, that's about consumers. Where are professionals like you in this economic mayhem? Even when there
are reasons to worry, you can't afford to panic. Good organisations would continue to hire, and those which
hire would mostly be good organisations. You could tread with confidence to those doors on which that
recruitment board is hanged…for chances of landing a good career cannot go wrong.
And for organisations, a recession makes available more professionals in the market. NMC Group and UAE
Exchange, which we represent, are proud to be among those who recruit professionals more during these
times. Because, we believe that the human intellect and other high performing resources can help
organisations face adversities better. The key to success lies in imposing discipline in ones functioning. Let
organisations of the world value their resources more, and let resources bring more value to those
organisations.
A few tips would help, however. Professionals, who are looking for job, can enroll themselves in a course/
training as they hunt jobs, as most trainees end-up getting confirmed employment as they build up a synergic
relationship with the company they work for. The economic slowdown gives breather for professionals to take
up short-term studies and courses as well. And when you are offered a job, do not have rigid choices regarding
city, salary, designation, location, shift etc. If you get a job, grab it and gain experience. The keyword which
employers are looking for during a job interview is 'flexibility'. For job interviews, agree for any place, date
and time because if you don't, somebody else will take that slot.
It is important to learn from the experiences around, the socio-economic developments, and to equip
yourself to ensure that you contribute to a healthy organizational and economic environment in the best
interest of all. Professionals like you have an important role to play. You should uphold truth and sanctity at
all times and always be empathetic to the consumers and the society, which would help us not to face a
downturn again. Sustainability should be the prime mantra of business enterprises. Sustainability can only be
achieved through social commitment and service.
The financial world needs to overcome these challenging times with immense courage and commitment. Let
us face the situation courageously, both as individuals and as corporates. A person, an organization, or an
institution can successfully survive if they have these 5 Cs
· Character
· Commitment
· Conviction
· Courtesy
· Courage
Let's not worry as what goes down will always go up. When you hit the bottom, there is nowhere else but to
move up. Markets tend to rebound. Don't lose heart. Lets not be those fattened, pampered ants that have
gone sluggish during the winter. Let's work even harder for that spring to dawn earlier.
Campus Thoughts
iv
31 INTERESTING TIMES: THE US AUTOMOTIVE SECTOR
Has the US automobile industry been digging its own grave? A look into
the causes for current crisis and possible way forward.
45 CHEMICAL INDUSTRY:
How BASF sustains in the highly challenging chemical industry
F-E-R
WHOM THE BELLS TOLL
Introduction universal. Many human and natural phenomena
follow foreseeable cycles, such as our biorhythms,
Something has fundamentally changed in the or the phases of the moon, which allow us to chart
world of business. Although just a handful of and understand them better.
people seem to have internalised this shift, the
effect is astounding and profound. Ten years from A similar process of regeneration exists in
now, one in three companies will no longer be business, which we call the Focus-Expand-
independent because of bankruptcy or a takeover, Redefine (F-E-R) cycle.
while another one in three will be completely It sounds simple, but companies - more now than
different at its core - maybe even having a ever - need to be acutely aware of which phase of
different core. Just one in three will resemble the F-E-R cycle they are in to safely negotiate the
what it looks like today. increasingly turbulent crosscurrents of the global
economy.
What this means for countries with dynamic
markets, such as India's, is that around two-third In the Focus phase, a company concentrates on
of companies will discover in the coming years building its core business to its full potential. In
they need to make fundamental changes in their the Expand phase, it takes advantage of its
business models. Surveys reveal the No. 1 capabilities and market position to move into -
innovation priority for CEOs is to find ways to and conquer - adjacent markets. But inevitably,
innovate around the fundamentals of their many companies experience dwindling growth
strategy and its underlying economic engine. and profitability, or a direct threat to the core,
That's what De Beers did in the end-1990s and from a new competitive model with inherently
early 2000s in response to a slump in the diamond superior economics. This is the time to Redefine
market that resulted in its profit margins hovering the core.
near zero. The world's largest diamond producer
successfully shifted its decades-old strategic Core And Beyond
focus of reigning over global diamond supply to
Some businesses, however, have successfully
developing the power of the De Beers brand by
remained in the Focus stage and extracted
zeroing in on its hidden assets: the company's
tremendous value by sticking to their core. India's
unique relationship with customers.
Hero group, the country's top seller of
motorcycles, is one such case.
As the world's economy changes rapidly - all the
more tangible in India - company evolution will be In the early 1990s, Hero was quick to seize on the
faster, just as evolution of organisms in a changing customer shift from scooters to the fast-growing
environment is hundreds of times faster than at motorcycle segment through its company, Hero
the bottom of the sea. Firms that don't redefine Honda. By turning the spotlight onto motorcycles -
face a higher risk of going out of business. which witnessed 26 per cent compounded growth
from 1993 to 2000 - it assumed leadership in the
While the pace is accelerating, the cyclical
two-wheeler industry from Bajaj and surged
process of regeneration is predictable and
ahead of rival TVS.
Its efforts to strengthen its two-wheeler core paid reported to be eyeing acquisitions and greenfield
off in other ways: the share of Hero Honda in projects in China and, once again, in the US.
overall group sales rose to around 80 per cent in
Other Indian companies, too, have made a habit
2006 from slightly over 40 per cent a decade
of moving into related adjacencies. ICICI Bank,
earlier.
India's biggest private bank, is a high-profile
On the other hand, the Bajaj Group did not zero in example.
on its two-wheeler business - Bajaj Auto - with
From its core banking sector in the early 1990s, it
such gusto and lost its way: the share of two-
has leapt into multiple adjacencies, including
wheelers in overall group sales in 2006 was around
non-life insurance and travel portals. The
60 per cent, basically unchanged from 1996.
Unlike Hero, a large percentage of Bajaj's sales company has also expanded into new countries,
continued to come from its other businesses in including Russia, the US, Britain and South Africa,
steel, electrical equipment and sugar. and plans to set up more branches overseas.
As India's economy grows strongly, many of its A third and final timing error in the cycle is plain
companies are in the Expand phase. Take Bharat old inattention, or taking the core for granted.
Forge, for instance. In recent years, the auto parts This could be fraught with risk, as a once clear,
maker and the world's second-largest forgings low-cost leader can be mimicked, allowing
company has moved into geographies such as the competitors to catch up.
US and Germany through strategic acquisitions
with the aim of boosting sales. Redefinition: Pay Attention
But cycles often play out over decades, lulling
In 2003, it bought Carl Dan Peddinghaus, one of
managements into complacency and making it
Germany's largest forging companies, gaining
imperative for CEOs to perceive the need to
access to car makers BMW, Audi and Volkswagen.
redefine early. One company that paid attention
Two years later, it acquired Michigan-based
soon enough was General Dynamics, which
Federal Forge, which gave it a foothold in General
perceived a major profit pool collapse ahead of it
Motors and tyre maker Goodyear.
competitors.
Bharat Forge's adjacency strategy has hit pay dirt:
In 1984, General Dynamics reigned as America's
its worldwide revenues soared from $137 million
largest defence company, with comfortable
in 2001 to $741 million by March 2007. It is
revenues of $7.8 billion. But with US defence
2
Expert view
STRATEGIC RESPONSES TO
INSTITUTIONAL CHANGES IN THE INDIAN PHARMACEUTICAL INDUSTRY
Abstract response choices available for Indian pharma
companies were:
The pharmaceutical industry in India has seen a
paradigm shift due to changes in the patent Expansion of therapeutic coverage and increase in
regime as well as changes in Indian business the rate of introduction of new products
environment post liberalization. This has F Creation of more brands and increase
necessitated adoption of various strategies to in distribution reach On reach
stay competitive. Some of these strategies are F Development/acquisition of R&D capabilities
developing R&D capabilities, exploiting generics for producing new molecules
market globally, securing product lines from
F International alliances and tie-ups to
international players and becoming a
secure product pipeline post 2005
manufacturing partner for a global player
F Mergers and acquisitions of products as
Introduction well as companies
The sweep of reforms and liberalization initiated F Strengthening existing generic product
in the early nineties dramatically changed the capabilities to exploit global opportunities in
generics.
face of many industries in India. Indian
pharmaceutical industry, though one of the latter F Re-positioning of the company as off-
shoring partner for global players in
ones to be touched by the hand of reforms, is one
L Manufacturing and other support
such industry undergoing a paradigm shift.
services
Indian pharmaceutical industry was governed by L R&D services
the Indian Patent Act (IPA), 1970, which did not
allow product patent on medicines, agricultural F A combination of more than one of the above
products, and atomic energy. In 1995, the Our study aimed to examine the strategic
Government of India signed the General responses of some of the large Indian
Agreement on Tariffs and Trade, GATT (WTO was Pharmaceutical companies over the last 10 years
the successor to GATT). As a signatory of GATT, to the change in the patent regime. Case studies
India was expected to introduce product patents of 5 of the top 20 Indian Pharmaceutical
and provide legal protection to Trade-Related companies are prepared and analysed. Through
Intellectual Property Rights (TRIPS). India was the analysis of these case studies, an attempt is
now under compulsion to introduce a product made to identify the key resources and
patent regime by 2005 after a permissible capabilities (can be viewed as the critical
transition period of 10 years. India shifted from strategic factors for success by practitioners) that
process-based patenting to product patents, will have an impact on firms' strategies and
2005 onwards. performance. Based on this, implications for the
Since 1995, when India signed the WTO, the industry as a whole are drawn with regard to how
Indian pharmaceutical companies have been firms adapt to changes in patent regime.
adopting various strategies looking ahead at the The critical resources and capabilities identified
product patent regime that would come into are:
place in 2005. Some of the broad strategic
- Research & Development capabilities that are identified above. The above
- Diversified Product Portfolio sample of 5 case studies is too small to draw any
- Global Presence conclusions for the entire Indian pharmaceutical
- Marketing and Distribution industry; but the sample gives rise to some clear
- Manufacturing Competence pointers, which can have important implications
- Financial Strength for the Indian pharmaceutical industry in the
context of the change in patent regime.
A few adaptation strategies that can be
implemented with the existing resources and Even though the sample companies are among the
capabilities, in view of impending change in top 20 Indian pharmaceutical companies, only a
patent regime are: few are reasonably positioned to emerge as
research-based, globally competitive
F Indian companies can pursue a strategy to
pharmaceutical companies. Professional
become a research-based international
management of R&D, with a strong commitment
pharmaceutical company. This requires
and support from the promoter/shareholder,
development or acquisition of all round
seems to play a crucial role in the success of the
resources and capabilities R&D capability,
diversified product portfolio, global research program. Financial strength seems to
presence, marketing and distribution emerge as a crucial strategic success factor that
capability, manufacturing competence and differentiates companies who are able to make
financial strength. the transition from those who are unable to do so.
F Strategy to secure a product pipeline from There are an estimated 300 to 350 companies in
international players keen to enter India by the organized sector of the Indian pharmaceutical
becoming their chosen partner. This requires industry (and close to 20,000 players in total).
three critical resources and capabilities - a Financially strong companies in the Top 20 find it
diversified product portfolio, strong difficult to develop the resources to make the
marketing and distribution capabilities in the transition to research-based companies if they are
domestic market and good financial strength. very large companies. The difficulties that lower
F Strategy to exploit global opportunity in the probability of an 'average' organized player of
generics market. It requires development / making the necessary transition can be easily
acquisition of the following resources and imagined. The consequence of failure of several
capabilities R&D capability, global presence, organized players can be very severe and the
marketing and distribution capabilities, repercussions can be huge, in economic as well as
manufacturing competence and financial social terms. Some form of Government
strength. intervention and support in terms of
F Another strategy available to Indian strengthening critical factors such as financial
companies is that of becoming a preferred strength and R&D capabilities has become
outsourcing partner in manufacturing or indispensable to help an average Indian
research for international companies. This pharmaceutical company make the transition
requires superior resources and capabilities in smoothly and successfully.
terms of manufacturing competence,
Author(s)
financial strength, R&D capability and a global
base of customers. Dr. Raveendra Chittoor is a professor of Strategic
Management Group, IIM Calcutta.
Apart from the above said strategies, several
others are also possible; however, they are likely
to need one or more of the key resources and
6
Notes from Academia
Author(s)
Sandeep Parekh is a World Economic Forum's
honoree as Young Global Leader 2008, and this
piece was solicited by and submitted to the WEF
to help create a roadmap for shaping the post-
crisis world at its annual meet in 2009 at Davos.
8
Campus Thoughts
2
Spectral Efficiency
1.8
1.6
1.4
1.2
0.8
0.6
0.4
0.2
0
bps/Hz
Downlink Uplink
Source: Alvarion Networks, White Paper on 3G and WiMax
10
Campus Thoughts
12
10
0
1xEVDO 3xEVDO 1:1 3:1 1:1 3:1
Rev A Rev A
HSDPA HSPA
SIMO SIMO MIMO SIMO
Source: Alvarion Networks, White Paper on 3G and WiMax
Downlink Uplink
EXHIBIT 3 : NET THROUGHPUT COMPARISON BETWEEN 3G AND WIMAX
12
Campus Thoughts
company each year which include the costs of Converter needs to be set up at the existing 2G
debt repayment, the return on debt and equities BSC facility to make it compatible with 3G
and the O&M costs. networks.
Proposition 1 0%
0 5 10 15 20
“The Cost of setting up a Brownfield 3G is less than
S-Curve Method (WiMax)
Greenfield WiMax which in turn is less than
S-Curve Method (3G)
Greenfield 3G”
EXHIBIT 6: COMPARING ADAPTATION RATES AT
From the outputs of the model, it was seen that SAME ARPU
the total infrastructural cost for setting up a
Greenfield 3G Network throughout Karnataka was Analysis using an S curve adaptation rate shows
costlier than a Greenfield WiMax Network. The that because of higher capital expenditure
main reason for this cost efficiency is due to the associated with Greenfield WiMax in comparison
savings that result because of the single to Brownfield 3G, WiMax would require a much
consolidated cost of BSC-BTS unlike 3G which higher initial adaptation rate compared to 3G to
requires separate BSC and BTS. justify investments in it. Since the current USP
(ultimate selling point) of WiMax compared to 3G
On the other hand when it comes to a Brownfield is the Data Services offered by it, they have to be
environment where there are existing networks in markedly superior to achieve greater adaptation
place, the 3G networks can obtain synergies close rates.
to 70% of the cost of a Greenfield 3G. This
becomes an attractive proposition for an existing Our Analysis shows if the initial adaptation rate of
2G operator who wants to upgrade to the next WiMax is 3 times compared to 3G in the initial 5
generation technologies. years, then an investor can earn an ROI of 35%
compared to 30% ROI of 3G. Exhibit 4 indicates a
The primary reason of this cost saving of comparison of the Adaptation rates as obtained
Brownfield 3G is due to synergies by using the from the model for the two technologies assuming
existing BSC and BTS infrastructure of 2G a constant ARPU. The constant ARPU indicates
networks. For upgrading an existing 2G BTS into a that the technologies are perfectly substitutable.
3G network compatible BTS, a converter box
needs to be installed. Similarly a Radio Network
14
Campus Thoughts
References
1. Alvarion Networks: A White Paper-
Comparison of 3G and WiMax Networks at
www.alvarion.com/mobilewimax for the
spectral efficiency and throughput rates for
3G and WiMax
BRANDING AND
EMERGING MARKETS
Abstract obvious that the user needs repeated contact with
the brand. Thus strong brands take time to get
This article looks at the various causes behind the
established.
lack of global brands from developing economies
and finds that their pattern is similar to countries The Producer's View
like Korea and Japan that have developed For the producer, a brand is an enabler that allows
recently. Based on this it predicts that it is likely competing on platforms other than price. Thus
that global brands will emerge over time from the branding is necessary when, and only when,
developing economies, first based on functional targeting customers who are willing to pay a price
characteristics; only later to become full fledged premium. In some cases, it would include
global brands. At the same time, it is likely that a manufacturers of quality products branding
number of niche luxury brands from these would allow the user to identify high quality
countries will also develop. products from low quality ones. As economic
Introduction theory tells us, the importance of a brand is lower
when the user can judge the attributes of a
A recent blog post1 asked the question whether
product directly rather than having to rely on the
Indian brands really exist. The question was partly
brand.
motivated by a study of the top global brands2, 3
which showed that there were no brands from the Why don't Developing Economies have
BRIC countries in the top 100 brands of the world. Strong Global Brands?
Korea was the most “developing” country that had Understanding the definition of brands and the
any brand (Samsung and Hyundai) in the list. Quite history of developing economies provides
apart from the study, one just has to look around meaningful insights to this question. One of the
to note that most of the brands one sees are from first possible reasons that come to mind is lack of
the developed markets. resources. However, given that the Chinese and
This article attempts to understand the reason for Indian economies are third and fourth largest in
the phenomenon and the reasons behind it. It next the world, and that they do have some really large
tries to suggest the most likely course of evolution companies, this seems unlikely. A second possible
over time. reason is lack of time most developing economies
have moved comparatively recently to a market
What is a brand? The Consumer's View based economy from a regulated economy where
brands did not have much of a function. A related
For the consumer, a brand is a collection of
factor may be the lack of necessary expertise due
symbols, experiences and associations connected to the earlier lack of importance of branding. A
with a product, a service, a person or any other study by BusinessLine6, for instance, shows that
artefact or entity4. For the consumer, the brand is the assets of Indian companies tend to comprise
an identifier for what he consumes. The brand more of tangible assets rather than intangible as
helps him remember and allows him to find what compared to, say, the USA. Another reason may be
he wants. In order to achieve this goal, it is that these economies primarily compete on price
and hence do not need strong brands. A related already see a number of industries having reached
reason may be the lack of quality products or a the critical size. A number of them have also made
perception of the same, implying that without oversees acquisitions that have brought them
quality it would not be possible to compete on a control over strong global brands (e.g. the
basis other than price. acquisition of Jaguar and Land Rover brands by the
Tatas). A large number of local brands do exist (for
Future Outlook instance Tata, Bajaj and Goodrej).8 It is possible
that some of these will become functionally
Lessons of History
superior to the currently established global
Much can be learnt from the two countries that brands and will, over time, become global brands
have closed the gap from underdeveloped in their own rights.
economies to developed economies in the last
century Japan and Korea. These began as low cost Some authors also claim that brands that work in
manufacturing hubs, nurtured industries till they India (like Nirma) follow a low cost model. While it
reached a critical size, began developing quality is undoubtedly true that the businesses behind
these brands have been successful, it is unlikely
products (often) via the OEM route and finally
that the brands are strong in terms of being able
developed global brands. Thus we see a step by
to command a price premium. The brands serve
step evolution in a developed economy's brands.
merely as placeholders in the consumers' memory
Initially these compete on price. Over time, the
rather than assets of value.
brands grow and reach a critical size. Next the
brands compete on functional dimensions, Another possible evolution is more the
possibly because these require comparatively entrepreneurial way. A number of brands like Fish
lesser trust as the buyer can easily identify them. Fry, Amrut Whiskey, Urvashi, HiDesign and Cobra
Once sufficient time has passed and the trust beer are carving niches in the global market10 and
established, do these become global brands. An have plans to become global luxury brands in their
example for the same is provided by Samsung7. In selected niches. While they are miles away from
its early years, Samsung was protected by the becoming a Gucci, they have been able to stave
Korean government to enable it to grow. The off the image of India as a low cost destination
government also enabled access to advanced and, in a couple of cases, leverage on the Indian
electronics technology to enable it to mystique.
manufacture memory chips. Over time, it grew
and competed as a low cost memory chip
Author(s)
manufacturer and later invested in Nirmesh Mehta is a 2nd Year PGP student at IIM
R&D to become a major global electronics brand. Ahmedabad. He holds a Bachelor's degree in
Possible evolution Electrical Engineering from the Indian Institute of
If we look at the possible reasons for the Technology (IIT) Bombay and can be reached at
developing countries not having strong brands in 7nirmeshm@iimahd.ernet.in.
nd
the light of the experiences of Japan and Korea, Rukesh Reddy is a 2 Year PGP student at IIM
we realize that each of these were overcome with Ahmedabad. He holds a Bachelor's degree in Civil
Engineering from the Indian Institute of
time in a manner that today, in retrospect, seems
Technology (IIT) Bombay and can be reached at
a natural progression. 7rukeshr@iimahd.ernet.in.
It is likely that similar trends will occur in the
countries that are currently developing. We
18
Campus Thoughts
References
1. “Do Indian Brands Really Exist?”,
http://www.mouthshut.com/diary/hhebsqmmm
/Do-Indian-brands-really-exist (Last accessed on
15 January 2009)
4. “Brand”, http://en.wikipedia.org/wiki/Brand
(Last accessed on 15 January 2009)
7. “Samsung”,
http://en.wikipedia.org/wiki/Samsung (Last
accessed on 15 January 2009)
witnessed multiple definitions. According to With these properties in context, the next section
Krippendorff (1986), “mass media is the generic will attempt to create a framework for
term for newspapers, book publishing, radio and interpreting and analyzing entrepreneurial
television. Other media include the recording activities in a magazine publishing firm.
industry, movie industry and theatre. All media
are associated with more or less elaborate forms A Conceptual Framework
of audience participation.” Aris and Bughin (2005)
We have surveyed a subset of entrepreneurship
came up with a more precise definition where
literature, to identify key dimensions along which
they said “the media industry is a unique
entrepreneurial activities can be analyzed. First,
crossbreed of creativity and business, comprising
we identify the most important factors common
a wide array of segments…”. According to them,
for all entrepreneurial firms, after which
the core of all media businesses revolved around a
we present the dimensions which we
perishable commodity (content) which
feel are key to the magazine publishing industry.
differentiates different forms of media, as well as
one business from another, within the same media
Common Dimensions for any
sector.
entrepreneurial firm
With so many diverse forms of media available, we Innovativeness: From the research in
realized it would be more fruitful if we restrict our entrepreneurship literature, it is clear that a key
analysis to just one sector. For this purpose, we success driver for an entrepreneurial venture is
have chosen the magazine industry, more the innovative ability of the entrepreneur
specifically that of consumer magazines. (Schumpeter, 1934). According to Lumpkin
(1996), innovativeness may have significant
Properties of Magazine Market commonalities with product-market and
Market structure: Consumer magazines have a technological change, and represents a critical
highly fragmented and competitive market. The means through which firms pursue new
number of titles is increasing and there is opportunities.
moderate concentration in the industry There is a
Proactiveness: Penrose(1959) claimed that the
wide difference across markets in terms of
vision and imagination of entrepreneurial
number of titles, advertising income and so on,
with publishing remaining predominantly a managers is essential to drive growth of firms.
domestic industry. (Cinzia Dal Zotto, 2008, Picard, Venkataraman (1989) broadened the earlier
Robert G., 2002) narrow scope when he suggested that that
proactiveness refers to processes aimed at
Distribution: Consumer sales happen either anticipating future needs by "seeking new
directly through subscriptions, or single copy sales
opportunities which may or may not be related to
through retailers. It has been observed that 60% of
the present line of operations, introduction of
newsstand magazines remain unsold, and there is
an increasing reliance to use newer modes of new products and brands ahead of competition,
distribution like large retailers ( general good strategically eliminating operations which are in
stores, grocers, etc). (Cinzia Dal Zotto, 2008) the mature or declining stages of life cycle". We
feel that proactiveness, with its focus on
Advertisement friendly: It has been noticed that identifying new opportunities, is essential for the
magazines are extremely good for brand
success of any entrepreneurial venture.
advertising, due to their strong positioning and
loyalty. Compared to any other mass medium, Also, we find that all the characteristics of
they are best suited to provide high reproduction entrepreneurial orientation as listed by Lumpkin
quality. This benefits advertisers who would (1996) were not directly related to any facets of
believe their products are better portrayed on the media industry. We also see that the above
better coated stocks. (Cinzia Dal Zotto, 2008) dimensions of innovativeness, while essential for
22
Campus Thoughts
ENTREPRENEURIAL VENTURE
COMPANIES
AUDIENCE
Brand Advertiser
Innovative Proactive
Community Involvement
ness ness
Formation Strategy
24
Campus Thoughts
crisis is very big and is spreading to other asset other countries as well, was related to the boom
classes. As per IMF's estimate, the US banking in the markets and economy at that time. The
system has suffered a loss of $1.4 trillion, up booming markets and economy were in turn
dramatically from its April projection of $945 substantially buoyed by the high confidence, in a
billion. The US Senate has passed a $700 billion
feedback loop. Recently, confidence has been
financial market rescue package as a bailout from
fading. In the US, confidence has fallen sharply
this financial turmoil. In its latest statement, IMF
since 2006; it has now plunged deeper than lowest
is predicting zero growth for US economy in 2009.
levels reached in the 2001 recession. This decline
This meltdown has crept into other parts of world. in confidence is seen in other countries as well.
After US, the first stop was Western Europe. UK When people expect good performance from their
government has lined up an $850 billion of rescue investment assets, they tend to bid up their
plan and it may nationalize Royal Bank of prices. That is what was happening in many places
Scotland. The total liabilities of Barclays of 1300 around the world in the years leading up to the
billion Euros exceed Britain's GDP. In Belgium, the current crisis, until markets collapsed.
government took a partial control of the
struggling Fortis Bank. The collective bailout The Indian Impact
packages in the US and Europe, at present at In India, FIIs have exited their positions worth
about $ 1.8 trillion $11.8 billion in the stock market and there has
been outflow which has hurt the rupee. The
As expected, the next stop of this financial
reason for this outflow is due to the financial
disaster is turning out to be Asia. Asian economies
pressure and liquidity crunch in their home
are moving towards recession and a few big firms
countries rather than the fall in confidence in the
are wiped out. Japanese Life Insurance firm
Indian economy. The implications are that the
Yamato failed with $2.7 billion in debt and Tokyo
stock markets have been beaten and Nifty traded
may set up a $100-billion fund to prop up smaller
around 2500 level, more than 55 percent lower
lenders. With two quarters of falling GDP
than what it was a year back.
Singapore economy is now technically into
recession. Manufacturing hub China is also
Benchmarks Current Rate Change
expected to face the music as their exports
predominantly to US are manufacturing oriented
Cash Reserve Ratio 6.5% Cut by 1 bps
and will be affected in this scenario.
LAF Repo Rate 8% Cut by 100 bps
The similarity of market behavior across countries
is an evidence to prove that there is something SLR Requirements 23.5% Cut by 150 bps
else, deeper than the causes that are usually given
for the subprime crisis in the US. The subprime The overnight inter-bank lending rates shot up to
crisis in the US is only a symptom of this 22 percent; Indian Rupee slumped to Rs 50.15 to a
fundamental problem. The most fundamental dollar its lowest close in more than six years.
problem is found in the swings of overconfidence
that have been seen in many countries since the There is also a growing trade and current account
1990s. The overconfidence shared by millions, deficit following a steep rise in oil and non-oil
billions, of people. And this confidence has been imports. India is predominantly a major importer,
very strong until recently. In the US, consumer and due to the depreciation in the Rupee and
confidence rose to near-record levels at the time rising oil prices the gap has widened to a large
of the peak in the stock market in the year 2000. extent. Due to the resulting liquidity crunch the
This high level of confidence, shared by many corporate borrowings from the global markets are
26
Campus Thoughts
6287.95
5917.55
5547.15
5176.75
4806.35
4435.95
4065.55
3695.15
3324.75
2954.35
2583.95
as of 24-Oct-2008
50
48
46
44
42
40
38
Jan08 Mar08 May08 Jul08 Sep08
Copyright 2008 Yahoo! Inc. http://finance.yahoo.com/
Fig 2: 1 year USD versus INR
becoming increasingly difficult. With investor implemented a few temporary measures. It has
sentiments in the equity market at its lowest, reduced the CRR requirements for the banks by
raising money for new investments through public 150 bps, cut the LAF Repo rates by 100 bps (a
issues is on hold, and liquidity in the economy is change after 4 years) and reduced the SLR
fast drying up. requirement for the banks by 150 bps. This has
lead to the infusion of 1, 85,000 crores into the
RBI's policy shift system and has enabled banks to draw funds. The
To counter all these changes RBI has made a major inflow of liquidity in system will increase the
policy shift from inflation priority to growth inflation which is already in double digit.
priority. To ease the liquidity in market it has
The sentiments are low and investors are looking time, importers are buying dollars in advance to
beyond these temporary relief measures. As every meet their import requirements in fear of further
coin has two sides; the current scenario has some depreciation. Exporters are not booking hefty
positive as well as negative aspects associated profits on Rupee depreciation as US market is
with it. facing recession and hence orders are either being
cancelled or postponed. Due to their hedging
Threats and Negative Effects positions they are losing heavily on the margins
Sector slowdowns and job cuts too.
28
Campus Thoughts
Conclusion
World is passing through a turbulent phase in the global
economy which will once again test the economies'
resilience as it had done during the currency crisis in
south east Asia, the spill-off of which is being witnessed
in India as well. While in current globalized world India
can never be fully insulated from global happenings, it
is more likely to be affected by sentiments rather than
fundamentals given the way it has built its economy.
Some serious work needs to be done to improve the
quality of the financial markets, both expanding
regulation and consumer protection, and we expect
more robust framework for reforms by policy-makers in
coming years.
Author(s)
Radha Krishnan R is a PGP student at IIM Calcutta
and can be reached at radakrishnan.r@gmail.com
30
Campus Thoughts
INTERESTING TIMES:
THE US AUTOMOTIVE SECTOR
Abstract This article makes an attempt to understand the
The US automobile industry has taken a massive woes of the Detroit big three (GM, Chrysler and
setback in recent past.” to “The US automobile Ford), and looks at the possibilities in the near
industry has taken a massive setback in the recent future.
past.”
Recounting the Recent Events
Introduction The timeline of the crisis is rather easy to trace.
In the times of global uncertainty, the US The first jolt came from spiraling fuel costs, with
automotive sector makes for a very interesting crude touching $100 a barrel. In the recent past,
study. As of December 2008, the automotive the Detroit big three had focused on
industry accounts for about 2.3 percent of the US manufacturing the high margin SUVs and trucks
output (down from about 5% at the beginning of the (SUVs on an average had profit margins of about
century) and about 20% of the shrinkage in 20%, as against the 3% margins on the average
manufacturing sector can be attributed to the small car). As fuel prices skyrocketed, the sales of
automotives. That there has been a massive SUV began to dip with customers beginning to
setback for the entire sector is undisputable. Sales worry about fuel efficiency. As customers moved
have dropped to an annualized rate of only about towards smaller cars, it was Toyota and Honda
10 million, where the industry boasts of a capacity who were making merry while the big three
of over 17 million cars per year. It has been argued suffered. Next came the credit squeeze. And this
that in order for the likes of GM and Ford to make blow was sudden. In the blink of an eyelid, the
profits, annual sales of over 15 million cars are entire financial market seized up and credit
required, where Toyota can do with only 12 million. facilities dried up. The automotive market –
$125
$100
$75
$/bbl
$50
$0
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09E
2Q10E
18
16.75
17
17.30 17.10 16.10 16.00
16.80 16.60 16.90 16.90
16 16.50 15.50
15.25
15.00
15 14.50
14.00
14
13.30
13 12.00
13.20
12
11 11.50
Source : Deutsche Bank Global Markets Research
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
March Exp. June Exp. November Exp. December Exp.
already reeling from impact of the oil shock could their predecessors even attempted in the entire
not recover, and went into a tailspin. Even though history of the three organizations. Together, these
the oil prices have receded on the back of a three gentlemen have accomplished more savings
worldwide economic slowdown, there has in efficiency than almost the entire industrial US
virtually been zero positive impact on the put together – a feat that can be considered to be
automotive industry [Exhibit 1]. nothing but fantastic.
As the months have passed by, the outlook for the Importantly, the companies have access to world
future begins to look very bleak indeed. For the class technology. Not only in terms of the
first time in decades, the sales have dipped under production lines, but also in terms of hybrid
14 million [Exhibit 2], and if December predictions vehicles and fuel efficiency. GM pioneered the use
are anything to go by, 2009 would be worse. Given of hybrid technology in city buses. The experience
that the current state of the market were to be means that the company can now leverage the
maintained, it is more than likely that the next same for use in SUVs and trucks. Any company
three years would see all automotive treading on the path of hybrid technology is surely
manufacturers (relying primarily on the US going to run into a GM patent (as well as a Toyota
market) incurring substantial losses. one) at one stage or another. And lastly, the
Detroit product is practically equal, or in many
The Big Three: Successful Enterprises cases much better than the Asian product when it
As we try to develop an understanding of the comes to fuel efficiency.
automotive market, we need to get some facts
right about the big three who control about 45% of The Problems
the US auto market. That accounts for more than 8 The seventeen billion dollar question, therefore,
million vehicles bought by Americans, a huge is this: what is it that is killing the big three? There
stake in the largest car market in the world, which is no correct answer to this; one can only
means that it would be impossible to replace the speculate. Many have said that the big three have
big three overnight. The leadership team at the been digging their own graves for decades, and it's
helm of the Detroit big three is also quite only fair that they are buried now. We would say
fantastic, to say the least. The three CEOs have that it's the benefits that are killing Detroit. A
successfully carried out more reforms than all system that was at the centre of American
32
Campus Thoughts
50
40
30
20
10
0
10
20
30
40
USA W. Europe Japan Brazil China India russia
Source: Deuscbe Bank Globa ! Markets Research 1H08 3Q0P Oct 08 Nov 08
capitalism is more socialistic in nature now. At $30 The other problem lies with the socialistic nature
per hour, Toyota pays one dollar more per hour to of the state franchise laws that won't let the
its employees than the wages paid by the big three carmakers shut down dealers without buying them
to UAW affiliated workers. However, the average out or indulging in costly lawsuits. What this
hourly wage of unionized workers in the US is $76 essentially means is that in order to protect a
an hour. The differential: benefits, benefits and dealership, you cannot kill off a weak brand. It is
more benefits. Consider this: UAW workers and these “loser” brands that lost billions for the B3,
retirees pay only about 5% of their medical bills; but getting rid of the dealers is such a costly affair
the national average is closer to 30%. Also, GM that the companies cannot even imagine of
proudly boasts of 3 retirees for every worker. treading that path. Hence, where a Toyota gets by
Where dealing with the retirees is a national (very well indeed) with only three brands in their
problem, it has taken quite different proportions kitty, GM has to bear the costs of eight. Experts
in Detroit. The unions treat the Detroit have pointed out that “trimming down” GM's
automakers (as well as some of the larger portfolio to match Toyota's would generate cost
component manufacturers) as ATM machines. As savings in excess of $5 billion per annum.
long as the companies are able to generate Lastly, the market for third party consumer
enough cash flows to cover benefits and bonuses, financing has been tightening by the day. And this
the unions do not care for worldly qualifiers like problem has not been restricted to the US market.
profits. Such a system would be an ideal setup for As a direct consequence, the business prospects
socialist USSR and communist China, but in the US outside the US seem bleak, [Exhibit 3] leading to a
– where capitalism is the order of the day (or has further erosion of the cash balances of the firms.
been so till sometime back in the recent past) – it
becomes difficult for one to bite on. The A Lifeline to Detroit
companies, as well as the employees need to Till now, we have talked about the big three in the
understand that the cash flows are for same light. However, there exists one key
reinvestment in core business, then save for rainy difference: the liquidity the companies are sitting
days, and then to be disbursed back to the on. GM and Chrysler are feeling the heat as cash
shareholders. The interest of the employee is balances have run out, and it's the bridge loans
nonexistent in the entire setup. provided from the TARP that would help the
companies survive through to March 2009.
The one key measure that needs to be adopted in to offer stocks to the trust instead of the cash – a
this case would be restructuring of employee proposal that has been very openly opposed by
contracts. Given the threat of bankruptcy and unions. The fact that UAW declined to take wage
subsequent job loss, there is expected to be cuts in 2009 indicates that the unions would play
enough pressure from the government on this hardball, and industrial policies under Barack
front. Consider GM as a representative. The Obama's new democratic regime would be tested.
reopening of the labor contracts would mean that Next, it becomes important to promote smaller,
that GM's North American fixed costs could drop to fuel efficient cars. The market for smaller cars is
$23 billion by 2010, from approximately $30 very well developed the world over, and the
billion currently. Given that this were to be success of SUVs in the US has been an anomaly. In
achieved, the company would still require a 13 the BRICs, it is simply the affordability that has led
million market to reach breakeven given the to the success of the small car concept. Japan and
current market share of about 20%. If the share Europe have policies that keep gas prices high.
drops to 18.5% (which is the more likely outcome This has created a very stable market for small,
given dropping SUV sales), GM would require a fuel efficient cars. Activist steps need to be taken
14.5 million market to reach breakeven. In the to promote the sale of smaller cars. In line with
entire setup, Chrysler is unlikely to remain an this, many of the state franchise laws would also
independent company given its ownership. Ford, need a relook in order to enable the big three to
on the other hand, is likely to benefit from labor shut down legacy brands and the associated
contract modifications and market share ceded by dealerships.
GM and Chrysler. Firstly, Ford relies less on SUV
It is very obvious that unless measures are taken at
sales than GM and Chrysler and has a wider range
every step of the way going forward, the next
of small cars in its offering. Secondly, Ford holds
page in the stories of the big three would have to
nearly $30 billion of gross liquidity, which should
be chapter 11. If that eventuality were to be
prove to be sufficient while operating through the
realized, the debtors, the unions and the
extended period of weakness.
franchisees would stand to lose everything. It
would be best for these parties to accept
Salvaging Detroit: The Way Ahead
whatever deals they get now, and live with it. The
There are many proactive steps that need to be coming months would see frenzied activity… and
taken in order to ensure the survival of the make for interesting times indeed.
indigenous auto industry in the US. First and
foremost is cleaning up the balance sheet. The
objectives are quite clear: the automakers need Author(s)
to reduce the amount of debt they have Piyush Kharbanda is a second year PGPM student
accumulated. The best option is to convert most at IIM Ahmedabad. He has worked as a business
of it into equity, an option that would be the most analyst primarily in the automotive and aerospace
difficult to exercise given the poor performance verticals, and holds an undergraduate degree in
of the automotive sector. electronics and communication engineering from
The big three also need to take the employee DCE. He can be reached at
related liabilities off the balance sheets, which 7piyushk@iimahd.ernet.in.
again is easier said than done. The ideal way Anita Kishore is a second year PGPM student at IIM
would be to give out a huge sum of cash to a trust Ahmedabad. She holds an undergraduate degree
that takes up the responsibility of maintaining the in mechanical engineering from VJTI, Mumbai.
benefits and the controversial “job banks”. The She can be reached at 7anitak@iimahd.ernet.in.
problem is also as simple to explain as the
solution: there is no cash. It would seem prudent
34
Campus Thoughts
References
The year 2009 has started off with oil prices The solar industry has been growing at a CAGR of
ranging at $30-50/barrel. The dramatic fall in oil 40-50% for the last five years. This growth was
prices after July, coinciding with one of the largely on the back of lucrative German subsidies.
biggest world-wide recessions in recent times, has The Germans pioneered the concept of fixed
major ramifications for the solar industry as well. feed-in tariffs to attract solar installations, which
has now begun to be emulated by most cheap solar energy. The explosive demand for
Governments. Cheap labor costs in China allowed solar PV would result in more economies of scale
the rapid commoditization of solar PV technology, and a downward cost spiral for solar energy,
and by the end of 2008, China was an important leading to the industry becoming self-sufficient
supplier of solar PV modules to Germany, Spain and independent from Government subsidies.
and US, the biggest solar markets as of now. The With oil prices falling to $40/barrel, the solar
solar PV industry is truly multi-national invented story does not seem to be as rosy as before. Add to
by the US, demanded by Europe and supplied by this the current liquidity crisis and expensive
China! credit, the solar industry starved of capital, could
die a premature death in these turbulent markets.
Solar energy not only increases energy-
independence of a country and minimizes Hope for the solar industry comes from promised
pollution but also creates new job opportunities Government subsidies. The upcoming Obama
for its citizens. The Spanish and German administration in the USA has promised a number
Governments have repeatedly used this as of green initiatives in the form of subsidies and tax
another reason to justify the huge subsidy burden incentives to sustain the solar industry. Sunny
for solar energies. California had already taken a lead in providing
To understand the solar economics, it is important feed-in-tariffs, apart from the federal tax credits
to understand the five components of the solar provided by the center. The German and Chinese
Governments have also allocated capital to green
value chain polysilicon, wafer, cell, module and
initiatives as part of the bail-out packages
assembly. The polysilicon is the basic raw material
designed to revive the economy.
and the biggest bottleneck for the industry.
Polysilicon shortage has resulted in its price rising In conclusion, the current $40/barrel oil prices
from $30/kg in 2002 to as much as $500/kg in 2008 are cancerous for the solar industry. While it
in the spot market. This shortage has been driven remains to be seen when and at what levels oil
by the complexity of polysilicon production and prices will stabilize, Government intervention
large ramp-up times for new polysilicon through subsidies is the only way to protect the
fabrication plants. The huge gross margins in nascent solar industry.
polysilicon and the growing subsidy-driven
Author(s)
demand for solar installations have attracted a
number of players, both western and Chinese, and Sumant Bhutoria is a second year PGP student at
2010 should see an additional influx of polysilicon IIM Ahmadabad.
supply in the market. Bottomline, with polysilicon
prices stabilizing at $70-80/kg, solar PV energy
could be produced at $4.50/W by 2010, down from
the current $7/W.
Solar PV competes with peak power tariffs, i.e.,
electricity generated from oil-fired plants to
meet peak loads. With oil priced at $70/barrel and
electricity tariffs rising at 5-10% annually, solar
plants generating power at $4.50/W could
achieve grid parity by 2010. Solar grid parity
would have meant an exponential demand for the
38
Campus Thoughts
freight movement. The classification of the Indian road construction and 370,000 km of upgradation
Road network is shown in table 1. at the cost of $26 billion.5
Table 1: Indian Road Network2 The present status of progress as given in the
official website at the time of writing this article
Length % of
was as follows:
Class
(Km) Total
Table 3 : Govt. projects undertaken
National 66,754 2.01
Highways/Expressways
No. of Road Works Cleared 81082
State Highways 128,000 3.86
New Connectivity 56379
Major district roads 470,000 14.18
In developed countries close to 100% connectivity Under the Bharat Nirman programme taken up for
has been achieved. Currently 60% of the villages in rural infrastructure development, the following
India are connected by all weather roads. The targets are set to be achieved within the period
constraint is limited funds and ad hoc approaches 2005-2009: 146185 Km road length construction
undertaken while planning the road network. by 2009 to benefit 66,802 unconnected
Rural Road works is executed by multiple agencies habitations in the country, also an upgradation of
in India resulting in lack of co-ordination. This 194132 km of the existing routes.
results in many villages getting several road
connections Table 4 : Cost and benefit analysis of roads in
India6:
A comparison between India and China:
Expense per Total (in Rs.
Table 2 Km (Rs. lakshs) 100 Crore) Utilisa
India China4 Yr New tion
Conn Upgra (%)
e- Expe
Length of Rural 2.65 2.9 dation Cost
ctivity nse
Roads (million Km)
00-01 8.57 10.74 24.23 31.39 77.21
Villages connected 60% 92%
01-02 10.52 16.07 47.30 52.97 89.29
Thus we see that although we have a larger 02-03 NDA NDA NDA NDA NDA
network in a smaller country, we have managed to 03-04 12.43 16.38 49.48 57.97 86.1
achieve a much lesser connectivity as compared 04-05 13.08 17.48 51.02 67.27 75.84
to China. This is on account of lack of proper
05-06 16.5 17.81 85.56 122.6 69.81
planning while developing road networks.
NDA = No Data Available
Government Programmes and Policies
The major government projects undertaken to In India 300-500 vehicles ply on a rural road every
improve the road network in the country is the day. The overall economic returns to road
Pradhan Mantri Gramin Sadak Yojana (PMGSY). development can be measured by summing over
Pradhan Mantri Gramin Sadak Yojana (PMGSY). the gains through transportation cost savings,
The scheme was launched in December 2000 as an higher output and lower input market prices, and
initiative to improve connectivity and reduce higher productivity. Benefits of this expenditure
poverty. The scheme proposes 368,000 km of new are primarily on two counts
40
Campus Thoughts
investment 'x' in an infrastructure company and this sector. The incentives and concessions offered to
'm2' be the income from any other investment, corporates are a good way of encouraging private
participation, however equal effort needs to be put into
then the net taxable income is 0.6m1+m2-0.2x
planning these networks to achieve maximum
The government has also expedited foreign connectivity. The progress can be accelerated only
investments in this sector by allowing up to 74% through transparent and speedy implementation of the
projects.
FDI for road and bridge constructions. Some of the
projects are as follows9 Author(s)
1. Delhi-Gurgaon (NH8) Vivek Pandey is a 1st year PGP student at IIM Bangalore.
He holds a Bachelors degree in Computer Science and
2. Jaipur-Ajmer (NH8) Engineering from Indian Institute of Technology (IIT)
3. Bangalore-Nellore Kanpur, Masters Degree in Computer Science from
University of Illinois at Urbana-Chaampaign and can be
4. Chilakaluripet (NH5)
reached at vivekpa08@iimb.ernet.in.
5. Hosur-Krishnagiri
Rajarshi Mukherjee is a 1st year PGP student at IIM
6. Chengelpet-Yellupuram (NH45) Bangalore. He holds a Bachelors degree in Electronics
and Telecommunication Engineering from Jadavpur
lTechnological Advancements required
University and can be reached at
Rural Road planning should be carried out by rajarshimu08@iimb.ernet.in.
building a strong database that contains village References:
level information and road inventory details.
1. Warrier, Shobha, 2005, The Rediff Interview/R
Information system plays a major role in
V Rajan, managing director, Anugraha Madison,
planning and development of rural areas.
http://www.rediff.com/money/2005/jun/02int
Telecommunication, remote sensing and
er.htm (Last Access date 12/09/2008)
computers would lend support to spatial planning
process. These can be used for optimal resource 2. Indian Road Network, 2009
allocation, monitoring and maintenance. Data http://en.wikipedia.org/wiki/Indian_Road_Net
from village level would reach faster at the work (Last Access date 12/09/2008)
official decision making level. The data should be 3. Kumar, P, Jan, S S, 2000,” Optimal rural road
collected from grass root level organizations and network planning for developing countries”
collated at the district and block level. For each http://findarticles.com/p/articles/mi_qa3927/i
road the following type of information is to be s_/ai_n8907186 (Last Access date 12/09/2008)
collected10 4. “China's rural road length reaches 2.9 million
1. Road reference data Km”, 2005,
2. Road geometric details http://english.peopledaily.com.cn/200510/24/e
ng20051024_216365.html (Last Access date
3. Road pavement conditions
12/09/2008)
4. Terrain and soil type
5 Pradahan Mantri Gram Sadak Yojana Website
Conclusion: http://www.pmgsy.org/government/security/lo
gin/dologin.asp (Last Access date 12/09/2008)
We find that there exists a huge amount of
untapped potential in the rural regions of the 6. Pradahan Mantri Gram Sadak Yojana Website
country that can be efficiently utilized through http://www.pmgsy.org/aspnet/Citizens/NAT/09
NPS/NCR.aspx?year=2000,2001,2002,2003,2004,
proper infrastructure planning and execution.
2005,2006 (Last Access date 12/09/2008)\
Roads, particularly those in the rural regions of
the country play a pivotal role. The government 7. KhadndKer, R. S, Bakht Z, Koolwal,B G, “The
has taken steps to encourage private participation in poverty Impact of rural roads: evidence from
Bangladesh” https://editorialexpress.com/cgi-
42
Campus Thoughts
bin/conference/download.cgi?db_name=NEUDC
2006&paper_id=88 (Last Access date
12/09/2008)
8. http://www.transport-
links.org/transport_links/filearea/documentstor
e/322_Thampil%20Pankaj%20Paper%201.pdf
(Last Access date 12/09/2008)
CHEMICAL INDUSTRY
Abstract the ability of future generations to meet theirs.
But it is no longer a question of just being good. As
The Chemical Industry is not well-known for its
John Doerr put it, climate change is “one of the
sustainability initiatives. And that is one reason most pressing global challenges”. Increasingly,
among others cost reduction, regulatory both equity and debt-holders are beginning to
tightening, and newer technologies that are realize that future cash-flows are susceptible to
forcing a change in the corporate mindset. The 'climate risk' and are therefore discounting share
article highlights the point with BASF as an prices of companies lagging behind in climate
example. BASF is one company that has identified awareness. Raw material and energy costs are on
sustainable development as a strategic the rise as pressure rises on limited resources.
imperative, and has committed its organizational Also, improving awareness amongst consumers is
resources to that end. The article discusses its allowing them to make purchases keeping in mind
a company's environmental record. At the same
initiatives in some detail, and also analyzes their
time, opportunities such as a vibrant market for
impact on the 'triple bottomline'. In the end, the
trading emission allowances are being presented.
business rationale behind such initiatives is
amply borne out. Global Chemical Industry: The Thrust
towards Sustainability
Introduction
The chemical industry is one of the most
Sustainable development has been defined as the important industries in the manufacturing sector,
pattern of carrying out business that seeks to which caters to virtually all sectors of an economy
meet present human needs without compromising and produces more than 80,000 products. Mindful
80 71.41
Milliion Tonnes of oil equt.
70
60
50
40
30
20
10 3.58 2.91 2.03
0.16
0
Oi
l s t at es rs
Ga ric a
Co
l he
ct He wab Ot
e
El n e
Re
Figure 1: Energy consumption in the EU (Source: European Chemical Industry Council,
http://www.cefic.org/factsandfigures/ (Last accessed on: Nov 30, 2008))
74
Electronics 78
74
Food 77
% of position replies
Automobile 67
72
Pharmaceutical 66
70
Electricity 67
70
49
Chemical 48
39
Petrtol/Oil 45
Nuclear energy 37
35
0 10 20 30 40 50 60 70 80
2006 2004
8 industries
awerage: 58
Figure 2: Public Image of the EU chemical industry (Source: European Chemical Industry Council,
http://www.cefic.org/factsandfigures/ (Last accessed on: Nov 30, 2008))
of their chequered environmental record, various Tightening regulations: The chemical industry
players in the industry have identified has been a subject of constant regulatory scrutiny
sustainability as a key component of their in the past. Regulations pertaining to worker
strategy. The following factors have contributed safety, waste disposal, gas emissions and
to sharpening the corporate focus: chemicals produced have imposed high costs on
Ensuring stable input and energy supplies: The the industry. And such regulations are expected to
chemical industry is heavily dependent on oil and increase in scope and power. For example, the
gas both for its energy and input requirements. European Union has adopted a far reaching
Raw material costs range from 30% to 60% of the regulation for Registration, Evaluation,
sales, and are a key component of total costs. The Authorization and Restriction of Chemical
industry is keen to reduce its susceptibility to substances (REACH) which requires registration of
variations in oil and gas prices, and to disruptions chemicals and progressive substitution of the
in their supply. most dangerous ones.
46
Campus Thoughts
1993
1996
1999
2002
2005
been promising, and further potential remains to
be tapped. For example, between 1990 and 2005,
GHG Emission Energy
Consumption while production in the EU chemical industry rose
Production
by 60%, total energy consumption remained stable
Figure 3: Emissions and energy usage in EU and greenhouse gas emissions fell by almost 30%.
(Source: European Chemical Industry Council,
http://www.cefic.org/factsandfigures/ Also, GHG emissions per unit of energy
(Last accessed on: Nov 30, 2008)) consumption have reduced by over 30% and GHG
emissions per unit of production have been
reduced by more than 50% from 1990 to 2005.
l Replacing key inputs: Using bioethanol
and other renewable biomass In the US, industry efforts towards ensuring safety
alternatives as feedstock to replace and environmental performance have been
crude oil. instrumental in reduction of industry emissions by
l Improving processes: Dow Chemical has 60% and reducing work related accidents by 31%
developed a 100% carbon dioxidie while increasing output by 30%.
blowing agent for polystyrene foam
BASF: A Snapshot
BASF is the largest chemical company in the world
with sales of € 58.0 billion in 2007 and employee
150
Index 1990 = 100
(% of sales in 2007)
50
> 15 % Chemicals
10 - 15 % Automotive | Construction |
0 Utilities
1990
1993
1996
1999
2002
2005
The following table describes in greater detail the resource conservation and renewable raw
products offered by each segment and its materials. All new product and process
contribution to BASF sales and profitability: investments have to pass the 'eco-efficiency
analysis' test to identify those that are the most
Business Examples of Sales EBIT 1% EBIT
Segment Products/Services 1% of of total Margin
environmentally sound and economically
total efficient. In the end, a risk matrix like the one
Chemicals Inorganics like glues 25.81% 25.48% 14.09%
Petrochemicals,
shown below is obtained, and the decision is made
intermediates for accordingly.
plastics
Plastics Performance Polymers 24.60% 16.95% 9.83% In addition, BASF has taken up a host of strategic
Polyurethanes like foams
initiatives which can be better understood in
Performance Acrylics & Dispersions
Products Health Care products
21.32% 10.75% 7.20% terms of its impact on each step of the value
like food supplements creation process as follows:
resins and pigments
fuel additives
Agricultural fertilizers, pesticides
Focus on Operations
9.09% 8.34% 13.09%
Products etc., With an objective of increasing energy efficiency
Oil & Gas Exploration,
production, trading 19.17% 38.49% 28.66% and effective waste management, BASF has
and transportation sought to incorporate the concept of Verbund
Table 2: Summary of business segments (German for integration and networking).
(Source: BASF Annual Report 2007)
l T h e Pr o d u c t i o n Ve r b u n d - S i n c e
In terms of geographical segments, Europe
manufacturing plants are linked, the
constitutes the largest market for BASF, and products and waste from one plant serve as
within Europe, Germany is the biggest consumer raw material for the next, conserving energy
market. However, in terms of growth, Asia- and resources.
Pacific, South America, Africa, and Middle East
l The Energy Verbund - By linking energy
have been the most promising markets with an
supplies, excess energy in the form of heat is
increase in revenues of over 18% compared to
immediately converted into steam and fed
2006.
into the BASF steam network and can be used
as an energy source in other production
Sustainability: A Pillar of BASF Strategy
plants.
BASF is the leading chemical company in the Dow
Jones Sustainability World Index (DJSI World) and l Power Generation - BASF is increasingly using
was recognized for its climate strategy, its good (for 75% of its requirements) combined heat
environmental and social reporting standards and and power (CHP) plants to generate both heat
and steam which has an overall fuel
for developing innovative and eco-efficient
efficiency of almost 90 percent.
products. The BASF corporate website lists the
four pillars of its strategy as follows: Focus on Customers
l Earn a premium on cost of capital l Developing energy-efficient products BASF's
l Form the best team in the industry research efforts are reflected in products
l Help customers to be more successful such as Neopor® foam which helps
l Ensure sustainable development manufacturers save up to 50% of raw
materials. BASF also offers plastics that make
It spends around €400 million, or one-third of its
vehicles lighter, and additives that improve
total research and development budget, in the
fuel consumption.
areas of energy efficiency, climate protection,
48
Campus Thoughts
Figure 5: Decision matrix for eco-efficiency analysis (Source: Kicherer, Andreas , “Optimization of products and the product
portfolio”, http://www.rsd.cam.ac.uk/documents/local/events/downloads/gf/Andreas_Kicherer.pdf, (Last accessed on:
Nov 30, 2008))
l Providing consulting services - BASF has a not have adequate standards with its
consultancy program as part of its 'Success' expertise. Once suppliers meet their
sustainability program to help other requirements, they include their raw
manufacturers quickly learn how to work with materials in purchases.
REACH.
l Building Coalitions BASF is playing an
l Consumer Education - BASF published a important stewardship role in garnering
carbon balance in 2008, and was the first support for sustainable development. It is
company in industry to do so. This balance the founding member of the Global Compact
contrasts the CO2 emission-savings that are and the World Business Council for
achieved with BASF products and procedures Sustainable Development and also promoted
with the emissions from raw material the Responsible Care Global Charter.
extraction, production and product disposal.
Focus on employees and society
Focus on partners l Employee Safety and Welfare BASF
l Educational Institutions SEPA (China) and emphasizes constant training for bigger and
BASF have signed an agreement to broaden better jobs, and to reinforce the use of safe
strategic cooperation on clean fuels. In procedures.
another recent move, BASF has formed a l Community Development - The BASF Group
partnership with Columbia University to spent a total of €67.2 million on community-
research sustainable energy sources. based, social, educational, scientific,
sports, artistic and cultural projects in 2006.
l Suppliers - BASF provides suppliers who do
Environmental Impact
BASF has succeeded in breaking the link between
production output and the use of energy derived
from fossil fuels. As the graph below shows, while
production has risen by approximately 59 percent,
the use of fossil energy sources for electrical
power and steam generation has fallen by
approximately 44 percent since the 1970s. In the
period from 1990 to 2002, BASF reduced emissions
of greenhouse gases by 38% in absolute terms.
Figure 7: Production and energy consumption at BASF l BASF products have also led to an indirect
(Source: BASF, “Conserving resources”, impact through its customers. For example,
http://www.basf.com/group/corporate/en/content/ using BASF technology, PetroChina hopes to
investor-relations/basf-in-brief/verbund/conserving-resources,
reduce its emissions of laughing gas by more
(Last accessed on: Nov 30, 2008))
50
Campus Thoughts
than 10 million metric tons of CO2 the profit margins have improved over time
equivalents. In addition, products such as as shown. While many other factors have
Neopor® which is an advanced insulating contributed towards the improvement,
foam, reduce the heating costs as well as the environmental measures have duly played
associated emissions. their part.
Societal Impact Conclusion
BASF efforts have also contributed to employment
BASF has clearly identified 'climate change' as an
generation and improving education.
opportunity to innovate. This innovation is manifested
l Employment - BASF trained a total of 3,135 in terms of better processes and newer products. It is
young people in Germany in 2006. In the same supported by a strong corporate focus, and resource
year, 878 young people were taken on as dedication. And what is more, it has made tangible
trainees at BASF. financial and environmental progress in sync. With
stakeholder focus on environment certain to become
In Africa, the support of BASF's social fund for the
sharper, 'green' is a colour that would increasingly
Lapdesk project has improved education for about
define corporate strategy.
100,000 schoolchildren.
Author(s)
Financial Impact
Many a times, sustainability initiatives are hard to Akash Gupta is a 2nd year PGP student at IIM Bangalore.
He holds a Bachelors degree in Electronics Engineering
relate to core financial performance. However, in
from Indian Institute of Technology (IIT) Roorkee and
the case of BASF, there has been a tangible link to
can be reached at akashg07@iimb.ernet.in
improved financial performance, highlighting the
significance of such steps. References
l Cost Reductions - Verbund pay-off - BASF has 1. Lash, Jonathan, and Willington, Fred, 2007,
achieved total annual cost savings of “Competitive Advantage on a Warming
approximately EUR 800 million by integrating Planet”, Harvard Business Review, Mar, pp 2-11
plants and processes. The company has 2. The Indian Chemical Industry, KPMG, 2003,
reduced on-site accidents at Anderson by 61 pp 6
percent and corresponding expenses due to 3. The Indian Chemical Industry, KPMG, 2003,
employee training programs emphasizing pp 8
safety. 4. “What is REACH?”,
l Revenues and Profit Margins - New products http://ec.europa.eu/environment/chemicals/re
ach/reach_intro.htm (Last accessed on: Nov
like the Eco-efficiency analysis tool have
30, 2008)
created an additional annual turnover on
BASF chemical products of around € 3-4 mn. 5. Spear, Mike, “Chemical industry sees green”,
http://www.chemicalprocessing.com/articles/2
Coupled with the cost savings outlined above,
52
2009 Volume 1
AUDIRE
IIM ABC Consulting Review
Audire is a joint initiative of the student consulting clubs at IIM Ahmedabad, Bangalore & Calcutta.
The IIMC Consulting Club aims to provide opportunities for the students to
participate in live consulting projects. The club arranges various
networking events to enable students to interact with the industry.
Lastly, it organizes consulting games, quizzes and case competitions to
enhance the skills of the students indirectly preparing them for the
consulting industry. The club can be reached at Expert View:
consults@email.iimcal.ac.in "F-E-R Whom the Bells Toll" by
Chris and Ashish, Bain & Co.
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