Business Strategy and Management – Multidisciplinary Case Studies Important Questions

Business Strategy and Management – Multidisciplinary Case Studies Important Questions

Question 1.
Read the following case and answer the questions given at the end :
In 2006-07 PTC Food division decided to enter the fast growing (20-30% annually) snacks segment, an-altogether new to it. It had only one national competitor-Trepsico’s Trito. After a year its wafer snack brand-Ringo, fetched 20% market share across the country. Rmgo’s introduction was coincided with the cricket world cup. The wafer snacks market is estimated to be around ₹ 250 crores.

The company could take the advantage of its existing distribution network and also source potatoes from farmers easily. Before the PTC could enter the market a cross-functional team made a customer survey through a marketing research group in 14 cities of the country to know about the snacks of eating habits of people. The result showed that the customers

within the age-group of 15-24 years were the most promising for the product as they were quite enthusiastic about experimenting new snack taste. The , company reported to its chefs and the chefs came out with 16 flavours with varying tastes suiting to the targeted age-group.

The company decided to target the youngsters as primary target on the assumption that once they are lured in, it was easier to reach the whole family. Advertising in this category was extremely crowded. Every week two-three local products in new names were launched, sometimes with similar names. To break through this clutter the company decided to bank upon humour appeal.

The Industry sources reveal that PTC spent about ₹ 50 crores on advertisement and used all possible media-print and electronic, both including the creation of its own website, Ringoringoyoungo.com with offers of online games, contests etc. Mobile phone tone downloading was also planned which proved very effective among teenagers. The site was advertised on all dot com networks. Em TV, Shine TV, Bee TV and other important channels were also used for its advertisement along with FM radio channels in about 60 cities with large hoardings at strategic places.

Analysts believes that Ringo’s success story owes a lot to PTC’s widespread distribution channels and aggressive advertisements. Humour appeal was a big success. The ‘Ringo’ was made visible by painting the Railway bogies passing across the States. It has also been successful to induce Lovely Brother’s Future Group to replace Trito in their Big-Bazaar and chain of food Bazaars. PTC is paying 4% higher margin than Trepsico to Future group and other retailers.

Ringo to giving Trepsico a run for its money. Trito’s share has already been reduced considerably. Retail tie-ups, regional flavours, regional humour appeals have helped PTC. But PTC still wants a bigger share in the market and in foreign markets also, if possible.
Questions:
(a) What is SWOT Analysis?
(b) What are the strength of PTC?
(c) What are the weaknesses of PTC for entering into the branded snacks market?
(d) What kind of marketing strategy was formulated and implemented for Ringo? What else need to be done by Ringo so as to enlarge its market?
Answer:
(a) The comparison of strengths, weaknesses, opportunities, and threats is normally referred to as a SWOT analysis.

• Strength : Strength is an inherent capability of the organization which it can use to gain strategic advantage over its competitors.
• Weakness : A weakness is an inherent limitation or constraint of the organization which creates strategic disadvantage to it.
• Opportunity : An opportunity is a favorable condition in the organization’s environment which enables it to strengthen its position.
• Threat : A threat is an unfavorable condition in the organization’s environment which causes a risk for, or damage to, the organization’s position.

The central purpose of SWOT analysis is to identify the strategies that will create a firm – specific business model that will best align, fit, or match a company’s resources and capabilities to the demands of the environment in which it operates. Strategic managers compare and contrast the various alternative possible strategies against each other with respect to their ability to achieve major goals and superior profitability.

(b) The strength of PTC:

• Wide spread distribution network
• Aggressive advertisements
• Easy availability of raw material
• Ringo’s introduction coincided with Cricket Wold Cup.

(c) The main weakness was the presence of strong national competitor. The company has only targeted youngster. Heavy advertisement cost is not required. It is unusually increasing the expenditure of the company.

(d) The company’s marketing strategy targeted the youngster on the assumption that once they are lured in, it would be easier to reach the whole family. For this their decision to bank upon humour appeal clicked. The following measures can be taken by Ringo so as to enlarge its market.

• Making the product available in public places and other crowded areas and organising street shows etc.
• Attention should also be paid towards the preference and tastes of foreign buyers for exploring the foreign market.

Question 2.
Read the following case and answer the questions given at the end:
Subhiksha (prosperity in Sanskrit) began with a single grocery store at Chennai in 1997. Subhiksha stores increased from 50 in 2000 to 140 by 2002-03 (spread across 30 towns in Tamilnadu) to 670 by 2006-07 to 1650 by September, 2008. Its early success was due to its business model based upon no-frills/deep discount and high level of neighbourhood focus. Its decision in 2004 to go national from a regional player at a rapid pace proved wrong.

With the growing ambition to go national, focus shifted from value to customers to creating valuation for self. The company had recruited all the employees to foray into consumer durables also. Its revenue increased from ₹ 278 crore from 140 stores in 2005 to ₹ 2305 crore in 2008 with a capital base of ₹ 32 crore. Subhiksha’s profit after tax for 2007-08 was ₹ 41 crore. It had invested heavily, largely using debt, and paybacks took longer than expected. Repayment of debt had no relationship to cash flow. In the end the company had liabilities of ₹ 900 crore.

Around January, 2009, the company had started to shut down stores pan-India and in February, the top management quit the firm, not just because it defaulted on rentals of its outlets and salaries since October, 2008. Today all the stores are closed. Major suppliers had stopped supplies after it defaulted on payments. It asked its employees to take home groceries; and go on leave without pay. Many employees did not get their salaries. Initially the company was confident to restructure and remain in business.

Indian retail industry comprises of 12 million mom-and-pop stores and kirana stores (many of whom have also started innovating) and unknown number of hawkers in the unorganized sector working on small-sized stores and with low or no rentals and salaries and the organized retailers (market share not more than 5%).

The emergence of a large young population and a growing middle class wi(p strong disposable incomes and credit card culture are the drivers of the organized retail, a mix of two types ones going in for huge expansion announcements and others following “slow and steady wins the race strategy”. The industry operates not on a very hefty margin. The yearly top-line growth is likely to remain around 10-15% as against forecasted 35% this year. Compared with players like Pantaloon, Reliance, More, RPG and even Nilgiri’s (which has private equity funding), Subhiksha has no large group’s backing (except Shri Azim Premji having 10% stake).

The strategy was to raise more debt and keep equity low. During 2006, Subhiksha had a good chance to make an initial IPO or raise private equity money, but it was in quest of creating higher valuations. Suddenly retail was no longer so hot and the capital tap had gone dry. Due to inability to raise more debt, working capital was diverted to expand. Many of the organized retailers have survived the downturn through transformation in their strategies and tactics. However, one thing is certain that footfalls have declined for the organized retail.

Debt-ridden retailer Subhiksha Trading Services Ltd. has begun its second innings in February, 2010, with the launch of its first cash-and-carry store (the board outside the outlet reads Subhiksha Maligai Arisi Mandi) in Thiruvanmiyur in Chennai – at its first ever retail outlet). “Subhiksha’s model will be different this time around and will not directly engage with customers,” said an industry source.
Questions:
(a) “To understand the nature of competition certain questions need to be answered.” What those questions are?
(b) Who were the competitors of Subhiksha? Do you think they were better equipped than it?
(c) What, where and how the business strategy of Subhiksha might have gone wrong?
(d) If you were the strategy consultant to the Organised Retailers Association of India, what will you advise to control the cost and convert the threat of dropping footfalls and declining sales into an opportunity?
(e) How is a Cash-and-carry store different from a Retail store? Name any other such Cash-and-carry store in India.
Answer:
(a) The nature of competition can be visualised in terms of SWOT (strength, weakness, opportunities and threats). The questions frequently asked are as follows:

• What are the strengths? What are the strengths of the competitors?
• What are the weaknesses? What are the weaknesses of the competitors?
• What are the opportunities that are available? What is the position of opportunities when compared to competitors?
• What are the threats that are available? What is the position of threats when compared to competitors?

Alternatively: Alternative questions that can be answered to understand the nature of competition are :

• Who are the competitors?
• What are their market shares?
• What are their products and services?
• What gives them cost and price advantage?
• What are their financial positions?
• What are they likely to do next?
• Who are the potential future competitors?

(b) Subhiksha was facing competition on two fronts :

• Organised sector: Big departmental stores.
• Unorganised sector: Weekly markets, street vendors etc.

Different vendors in organised and unorganised sector enjoyed a number of distinct advantages in comparison with Subhiksha. There are many players in the organized retailing such as ‘Big Bazaar’, ‘Spencer’, ‘More’, etc. These had support of established big business houses. They also took better strategic decisions. All of them competed with Subhiksha and were not short of finances.

The unorganised sector’s benefit is their own low costs and reach to the customers. Mom-and-Pop stores are small-sized retailers that are spread around nook and corner of the country. They enjoy personal relationships touch with the customers, and have cost advantage due to no or low rentals and salaries. They also normally work with their own funds and do not have any interests costs.

Weekly Bazaars, frequently named after the days of weeks such as Mangal/Budh Bazaar, also enjoy similar position. Hawkers lined up along streets, spread out on temporary platforms and illuminated by gas-lamps also offer bargains. The street vendors offer the unparalleled convenience as they serve at the door of the users.

(c) Subhiksha’s business model was working fine till it was a regional player. It did try to look at the things with long-term perspective but that landed them in trouble. Problems arose when it tried to expand rapidly. It was their aggressive growth strategy that had gone awry because they opened too many stores in too short a period without realising the potential of the company. Outlets were opened for sake of expansion, inspite of focus on sustainable growth.

Subhiksha’s financial strategy also proved to be problematic. Retail sector needs cash infusion. Subhiksha expanded by diverting working capital and rising high costs debts. To leverage on a small equity base of ? 32 crore only was bound to put them in difficulty. Recession made it faster. The strategy of Subhiksha of raising funds with more debt and less equity was wrong. It also did not go for the IPO to manage their finances in a better manner.

(d) In order to control the costs Organised Retailers Association of India can make several recommendations to its members. A strategist may suggest the following points:

• Reduce inventory : With proper inventory management, the cost of obsolescence and reduce financing cost of inventory.
• Efficient utilisation of facilities : Expenditure on account of power can be reduced by optimum usage of air-conditioning, lifts, lighting, etc.
• Procure directly from the source : To reduce the costs and take advantages of bulk purchases, the products may be purchased directly from the manufacturers and producers.
• Lease out excess space to manufacturers and other marketers : Extra space may be leased out at a price to others. This will generate extra revenue and efficient utilisation of space. Many organised retailers offer separate space to the sellers of cosmetics or small eateries. This also improves footfalls.
• Offer discounts : Hefty discounts can be offered on the products that are brought at low costs to improve the interest and footfalls. It improves the sales even with falling footfalls.
• Combination offers : Offers can be made to combine low moving products with fast moving products and sell them at discount.
• A balanced capital structure : The debt-equity ratio should be properly maintained with future perspective so that the scarce financial resources can be utilized in an optimum manner.
• Organise special events to improve sales : Special events can be launched. These can have direct effect in increasing footfalls and the sales. For example, an exhibition can be organised inviting mobile manufacturers to showcase their new products. Events such as painting competition for school kids, magic shows can also be organised to attract visitors to the stores.
• Have proper security : Proper security system should be maintained to reduce the losses on account of pilferages.

(e) A cash-and-carry store is different from a retail store. Cash and carry store is one where customer pays in cash and carries away the purchases. The term is basically being used for the stores (wholesalers) that are making bulk sales to the retailers, caterers and institutional buyers.

Therefore the business model is business to business. No credit period is given and invoice is settled on the spot in cash. The goods are carried away by the purchasers themselves. The store works as a bulk supplier rather than a retailer selling small quantities directed towards consumers.

Question 3.
Read the following case and answer the questions given at the end:
Godrej, still managed by a family board, is a 113-year-old brand and has a great brand value. But younger generation’s reaction has been – “it’s my parents’ or my grandparents’ brand. Hence the Group launched a re-branding exercise in 2008, the most visible part being a new logo, uniform across all group companies. It has well diversified businesses – cyclical (property: owning 3000 acres in Mumbai’s Vikhroli alone, Ahmedabad, Pune and Kalyan), stable (fast moving consumer goods), rural (Agrovat stores) and urban (organised retail stores-Nature’s Basket, domestic appliances and furniture).

The group sells fatty acids to tyre manufacturers; animal feed to 1,00,000 farmers; and premium wine in Mumbai and Delhi. Its customers range from five-year olds (nutrine), ageing man (hair dye), to housewives (soaps & locks), IT companies (renting sprawling spaces), to Government of India (like rockets for Chandrayan), and to 50,000 barbers (Godrej dye). But it abstains in new-age, sunrise industries like health care and information technology.

Godrej Consumer Products Limited (GCPL) has adopted a ‘3 by 3’ strategy, sticking to emerging markets in three regions – Asia, Africa and Latin America as their culture, tastes and even skin colours are quite similar to India and in three categories-personal care, hair-care and insecticide. Since 2005, GCPL has made seven acquisitions, including its biggest acquisition of Indonesia’s Megasari Group for ₹ 1200 crore, in 2010.

“Acquisitions overseas add s.tatus and pedigree to brand-owners in the domestic market” says an expert. Prashant Goenka (Emami) questions “When Indian companies such as Dabur, Godrej and Marico can make it big in international markets, why can’t Emami ?” Anil Chug (Wipro) says, “by having a presence in multiple markets our risk assessment is neutralized”. Marico’s Harish opines- “the global play has helped Marico expand its footprint and given it another avenue for growth.”

Recently Godrej’s top honchos toured the hinterlands, an indicator of the renewed focus on consumer. To reach out to new customers, Especially in rural India, it has gone in for destructive innovation. The group has been manufacturing refrigerators for more than 50 years, but its penetration has been only 18%. It found out that people do not need a 180 litre fridge due to space and cost constraints.

It came out with ‘Chotukool’ – a square 45 litre mini fridge priced at just ₹ 3,250. Another example of destructive innovation is the launch of ‘U & Us’ – a ‘by appointment’ design studio where customers co-design their furniture as customers see furniture as an extension of their personality. Thus Godrej group is transiting from manufacturing-oriented to consumer oriented.
Questions:
(i) What are the strengths of Group Godrej?
(ii) What are the weaknesses of Group Godrej?
(iii) What is the Group Godrej’s perception with regard to innovation and consumers now?
(iv) Why do firms go global?
Answer:
(i) Strengths of the Godrej group are: .

• The group is into well diversified businesses. The businesses are both cyclical and stable in nature. The group also has presence in both rural and urban markets with different product offerings.
• Godrej is more than 113 year old brand.
• Godrej enjoys trust and goodwill and has great brand value.
• Godrej has 3000 acres of own land in Vikhroli, a developing suburb in Mumbai.
• Godrej is growing internationally and is concentrating on emerging markets of three regions – Asia, Africa, & Latin America.

(ii) Weaknesses of the group are:

• Godrej is managed by members of a family. Unlike professional management the family considerations may play important role in the decisions of the company.
• Godrej has made some aggressive acquisitions in recent times. How these are assimilated will be crucial for its business.
• Lacks a significance presence in new-age, sun-rise industries like health care, information technology and automobile industry.

(iii) Godrej group is shifting from being manufacturing oriented to consumer oriented. The company is focusing on customers and innovation. A business must understand what its customers want and keep innovating new products to satisfy the identified wants. If a company fails to do this, it will get extinct. For innovation Godrej has adopted destructive innovation. The capacity to innovate is a fundamental source of competitive advantage.

(iv) There are many reasons due to which the companies go global:

• To increase the returns through higher margins or lower costs through large scale of operations.
• Firms having surplus resources or capabilities developed at home may deploy them abroad for expansion.
• Due to imposition of trade barriers by an importing state, the exporters from aboard decide to build manufacturing plants in the importing country.
• Firms facing stiff domestic competition often decide to go international in search of new market.
• International presence dilutes local risk
• Development of Institutions to support and facilitate international business.
• Availing advantages of the liberalization initiatives of various governments across the world.
• Attractive opportunities may exist in form of businesses in managerial or financial difficulty.

Question 4.
Read the following case and answer the questions given at the end:
Sharp Corporation is a worldwide developer of innovative products and core technologies that play a key role in shaping the future of electronics. As a leader in liquid crystal displays (LCDs) and digital technologies, Sharp offers one of the broadest and most advanced lines of consumer electronics, information products and electronic components, while also creating new network businesses. Sharp Corporation has traveled a long way from an assembler of televisions to a leading TV manufacturer.

In its early days as business enterprise, the company was making low quality and low price TVs and, was, thus overshadowed by the giants like Sony, Samsung and Matsushita. It was a technology follower in the beginning and was using secondary technology, The brand image, too, was not very high. Sharp, under the leadership of Machida, went for a brand image make over by using innovation. The new leader has concentrated on R & D, in addition to enhancing its market coverage.

Its innovation in liquid crystal display (LCD) technology and developing products featuring LCD’s made at the reputed electronics company in Japan. Sharp is now the world’s largest manufacturer of LCD TVs. The company has very well succeeded and sustaining its success is a major critical factor: its focus on innovation. Unfortunately, the global economic downturn has hit Sharp worse than the most American Companies.

The industry as a whole, and Sharp in particular, realised the fact that only innovation in terms of quality, cost and competitive strength is the main survival factor. At the same time the industry is not unaware of the fact that every new technology will obsolete faster. Average life of every new technology is becoming shorter and shorter.

The ever changing competitive scenario with the global competitors waging to dethrone Sharp and the entry of low cost manufacturers from Asia, have created some of the biggest challenges for Sharp. Newer display technologies with superior quality at a lesser price are emerging in the international market. Sharp has taken the first mover advantage, but is facing competition from the late entrants.
Questions:
(i) What are the strengths of Sharp Corporation?
(ii) What are the weaknesses of Sharp Corporation?
(iii) What should be the next move of Sharp Corporation?
(iv) Analyse the key success factors for LCD TV Industry.
Answer:
(i) A positive aspect or strong capacity of a business which helps it overcome difficulties and gain strategic advantage over the others is known as strength of any business.
Example : Excellent work force, strong R & D.

The strengths of Sharp Corporation are as follows:

• It is the leader in LCD and digital technologies.
• Broadest and advanced product line
• Wide market coverage
• Focus on innovation through R & D.

(ii) The term weakness refers to a negative aspect or limitation of a business which keeps it way behind its competitors.
Example : Use of old technology or techniques of production.

The weaknesses of Sharp Corporation are as follows:

• Brand image was not high in the beginning and was thus overshadowed by giants like-Sony, Samsung, Matsushita.
• It was technology follower in the beginning and was using secondary technology.
• Global economic turn down hit it worse than other American Company. it
• Not able to cope up with ever changing technology.

(iii) The next move of Sharp Corporation should be to renew its value chain management in order to create competitive edge both in terms of high quality product as well as in terms of low cost. It can also explore areas where competition is low and also think about i
alliances, merger and takeovers.

(iv) Key success factors of LCD TV industry.

• High quality accomplished with low cost and competitive strength.
• Constant upgradation in its technology.
• First moves advantage.

Question 5.
To which industries the following development offers opportunities and threats? The number of nuclear families, where husband and wife both are working, is fast increasing’.
Answer:
Different developments in the environment can offer different opportunities and threats to businesses. An Opportunity is a favourable condition in the organisation’s environment which enables it to strengthen its position with respect to its competitors. A threat is an unfavourable condition in the which causes a risk for, or damage to, the organisation’s position.

The Situation in the question relates to threats and opportunities of social environment. In the present social environment, there is growth of nuclear families. This is away from the joint family system, when both husband & wife are working it increases their spending capacity. Opportunity: Such developments bring direct opportunities to different businesses such as Ready to eat food, fast to cook items, dish washers, washing machines, creches for children and so on. Indirect opportunities exists for other lifestyle products.

Threat: At the same time, such development also acts as threat to traditional raw food suppliers, kitty party organizers and so on.

Question 6.
The Postal Department of GOI is trying to develop competitive strategies to make better profits. The Chief of the postal department presents the following facts:
(i) There are many couriers who operate in major cities and offer guaranteed delivery at very marginally higher prices than the postal department and yet manage to make a lot of profits.

(ii) Couriers offer tracking facilities on the e-computer so that a customer knows when his consignment is getting delivered or where it is located at any point of time.

(iii) Many pick up points are available for customers. Even retail customers find it convenient to book their requirements without having to travel much. For bulk booking, the couriers provided pick up facility at no further cost.

(iv) Couriers are not available in rural and sub-urban areas whereas postal network is very good in these places.

(v) Couriers in the cities operate until 7 p.m. whereas the corresponding speed posts or registered posts close at 2-30 p.m. / 4 p.m. in most areas and 6 p.m. / 8 p.m. in big Post Offices in Metro Cities/GPO respectively. There are one or at most two centres which operate speed post counters for 24 hours, but there are no 24×7 courier facilities.

(vi) Postal services for parcels are much cheaper than the courier services.

(vii) International courier charges very highly priced for documents and parcels, whereas postal charges are up to 70% cheaper, but delivery is at least 50% slower. Retail customers prefer postal services while corporate houses prefer couriers.

(viii) International courier is mainly parcel services. Documents are not prominent revenue makers due to electronic mode of communication.

(ix) Staff in courier services is more customer-friendly than the Postal Dept, staff, whereas the Postal Dept, staff are paid much more.

(x) While wondering how different the scale of profits could be between similar services, the Chief of Postal Department considers that for a Post Office to operate, in addition to document/parcel bookings, banking services like MIS/PF/Savings Account, etc. telephone bill payment services, stamp sale services and other services are being rendered, requiring the necessary hierarchy of approving authority to be present. He is considering opening of more centres exclusively for the equivalent of courier services.

Required:
(a) Identify threats to the Postal Department, GOI.
(b) What would you consider as important strengths of the Postal Department, GOI?
(c) Mention the opportunities that the Postal Department, GOI can profitably consider.
(d) Apart from (x) suggest appropriate business strategies that the Postal Department, GOI may practically apply to successfully run a long-term profitable document/parcel service on the lines of the courier service.
Answer:
(a) Threats: Changes in the external environment also may present threats to the Postal Department. It is an unfavourable condition in the organization’s environment which creates a risk or causes damage to the Postal Department, which the Postal Department is not equipped to handle.

There are different threats as given below:

• shifts in consumer tastes away from the firm’s products
• emergence of substitute products
• new regulations
• increased trade barriers

(b) Strengths: A Postal Department’s strengths are its resources and capabilities that can be used as a basis for developing a compe.itive advantage. It is an inherent capacity which an organization can use to gain strategic advantage. It may be the availability of a particular resource with the Postal Department or the ability of the Postal Department to leverage it to performing certain activities better than its competitors.

Important Strengths of Postal Department are given below:

• patents
• strong brand names
• good reputation among, customers
• cost advantages from proprietary know-how
• exclusive access to high grade natural resources
• favorable access to distribution networks.

(c) Opportunities: The external environmental analysis may reveal certain new opportunities for profit and growth. It is a favourable condition in the Postal Department environment which enables it to consolidate and strengthen its position.

Opportunities of the Postal Department are given below:

• an unfulfilled customer need
• arrival of new technologies
• loosening of regulations
• removal of international trade barriers.

(d) Business Strategies of Postal Department:
(1) SO Strategies – The SO strategies try to improve the company’s strengths relative to its environmental opportunities. These strategies use firm’s internal strengths to take advantage of external opportunities. It is the aim of enterprises to move from other positions of the matrix to this one. When the firm faces a weakness, it strive to overcome it, making such weaknesses into strengths. When a major threat is faced by the firm, it will try to avoid such threat by focusing on opportunities.

(2) WO Strategies – The WO strategies will enable the Postal Department to overcome weaknesses and focus to tap its opportunities. WO strategies are evolved to improve internal weaknesses by taking advantage of external opportunities. The firm with internal weaknesses in certain areas may overcome them by developing such competencies internally or acquire from outside to take advantage of opportunities available in the external environment.

(3) ST Strategies – The ST strategies try to gear up the internal strengths to reduce the vulnerability of external environmental threats. The basic objective of these strategies is to maximize the advantage of internal strengths while minimizing the external environmental threats.

(4) WT Strategies – The WT strategies are the defensive strategies used to counter the internal weaknesses as well as external threats. In this situation retrenchment, joint ventures and liquidation strategies need to be evolved to up or out.

SWOT matrix is widely used as a strategic planning tool and used to generate several strategic alternatives. The aim of a business organization is to move from one position to another desirable position in the SWOT matrix. SWOT matrix can be prepared for the whole organization or for particular strategic business unit.

Question 7.
To which industries the following developments offer opportunities and threats’?
“Increasing trend in India to organize IPL (Cricket) type of tournaments in other sports also”.
Answer:
Opportunities An opportunity is a favourable condition in the organisation’s environment which enables it to strength then its position. The opportunities through IPL (cricket) tournaments are as follows:

• Growth of the Nation.
• Growth of Indian Cricket Industry.
• Growth of Stadiums.
• Growth of Sports Industry.
• Growth of Media Industry.
• Growth of tourism and hotel industry.

Threats – A threat is an unfavourable condition in the organisations environment which causes a risk for or damage to organisation.

• Increase in corruption.
• Increase in betting.
• Time wasting of people.

Question 8.
significant example of Strategic Choices in Indian Corporate in recent times is the growth for Starbucks and the Tata group. Starbucks has opted to enter into a strategic alliance with the Tata Group, as it attempts to establish a position in the Indian market. Tata Starbucks Limited is the 50-50 joint venture between Tata Global Beverages Limited and the Starbucks Coffee Company. The Company celebrated the opening of the 50,h Starbuck store in India on 8th July, 2014. The company launched its first store at Phoenix Market City, Velachery, Chennai.

The Company will continue to open more and more stores and grow thoughtfully in the market with a commitment to offer the unique Starbucks experience, unrivalled service, hand-crafted beverages, extensive food offerings and with a distinct fragrance and aroma of Coffee to Coffee lovers across the country. With 50 stores now operational across 5 cities, Tata Starbucks Limited continues to grow and nurture its brand in India-in line with its promise to build a strong connect with the Indian consumers.

Perhaps somewhat unusually, the stores will be co-branded as “Starbucks Coffee: A Tata Alliance.” Long known as a nation of tea drinkers-despite a rich tradition of Coffee in the south-lndia has embraced Coffee house culture with a vengeance.

“We are going to move as fast as possible in opening as many stores as we can so long as we are successful and so long as we are embraced by the indian consumers” said John Culver, President of Starbucks China and Asia Pacific. The need to address and respect potential cultural issues seems to have been a key factor in deciding to use the joint ventures route rather than set up a separate Starbucks subsidiary in India.

“We never considered 51 %,” Culver said, “When we looked at the opportunity to enter India, understanding the complexities of the market and , ,the uniqueness that is India, we wanted to find a local business partner.”
(i) What is Strategic Planning? State the Strategic Planning Process.
(ii) What approaches to Strategic Planning are advised to Tata Starbucks Limited for the Strategic Choice phases?
(iii) State the important key components of Strategic Planning Process for decision making in “Starbucks Coffee: A Tata Alliance.”
Answer:
(i) Strategic Planning: Refers to the development of strategic plans that involve taking information from the environment and deciding upon an organizational mission and upon objectives, strategies and a portfolio plan. It involves establishing the overall identity of the company, deciding on the strategic alternatives the company will follow and choosing the tactics or weapons which the company will emphasize.

Simply put, Strategic Planning involves identifying the long-term objectives and determining the action plans for the company. The objectives and action plans should be established only after careful assessment and prediction of the future states of relevant environmental factors.

Strategic Planning Process: Involves the identification of alternatives, the collection of information, evaluation and selection of alternatives and finally the strategic decisions themselves. Strategic Planning Process can best be understood in terms of stages:

• Stage-1 : Defining the mission.
• Stage-2 : Assessing organizational resources
• Stage-3 : Evaluating environmental risks and opportunities
• Stage-4 : Establishing long-term objectives
• Stage 5 : Formulating strategy
• Stage-6 : Establishing annual objectives
• Stage-7 : Establishing operational plans
• Stage-8 : Implementing the plans
• Stage-9 : Implementing, Monitoring and Adapting.

(ii) Approach to Strategic Planning Process for Tata Starbucks Limited – The following are the basic approaches to Strategic Planning process ‘ for Tata Starbucks Limited:

• Keep the engaging commitment.
• Set Long-term Strategic Objectives for improved performance of the organization
• Keep on generating Strategic Options
• Keep evaluating and decide on strategies
• There is a need to track monitoring implementation of the strategies against the long-term objectives.

(iii) Key Components of Strategic Planning Process are :

• The Strategic intent/objective to improve the long-term performance of the Starbucks Coffee: A Tata Alliance.
• The Strategic issues distilled from the analysis of key factors relevant to the overall situation of the organization in its environment and
• The Strategic options generated by the planning.

The Strategic choice space is in the area of overlap among these three components. Consideration of the other overlaps between pairs of components may stimulate discussion and possible other thoughts to clarify what are the really important elements in any decision about strategy. Between intent and issue analysis there may be no feasible options apparent.

Before giving up it may be worth looking to see if the alignment between factors raised in the analysis which seem relevant to objectives have been misread, or are alternative forms of issues already aligned in the central strategic choice space. Between intent and options it may be possible to identify early on that some options are just not feasible. There will of course be options thrown up that seem feasible, and to fit the issues raised to some extent, and yet do not align well with the objectives. They may be overly risky, or not align with the code of corporate conduct of the organization.

However, it is only in the space created by all three component circles overlapping, that we find any logical candidate strategic choice for inclusion in the final corporate strategy. Honest and evidence based exploration of this space enables a reasonable and possible set of strategies to emerge as if by magic. The ‘magic’ is that which comes with systematic hard work, and honesty in facing up to the really big challenges or strategic elephants facing the organization, in its pursuit of longer term sustainable performance.

When managerial ego becomes involved or a deep rooted organizational culture is at play, it may be very difficult to follow the logic as presented. It will be tempting to argue for a change in strategic intent in order to get in a favored strategic option. A suggested but infeasible strategic choice which seems very attractive might have influential supporters, so the evidence regarding its feasibility needs to be sound and fully available to the planning team may need to be carefully argued with clear evidence in support. Choosing what not to do, is as important to agree and record as part of the planning process, as the finally agreed strategic choices.

Question 9.
American Apparel is a fashion retailer and manufacturer that advertises itself as a vertically integrated industrial company. The brand is based in Downtown, Los Angles, where from a single building they control the dyeing, finishing, sewing, cutting, marketing and distribution of the company’s product.

The shoots and distributes its own advertisements, often uses its own employees as subjects. It also owns and operates each of its retail location as opposed to franchising. According to the management, the integration strategy allows the company to design, cut, distribute and sell an item globally in the span of a month.
(i) Which type of ‘integration strategy’ is being followed by the company?
(ii) Give reasons for adopting such strategy in support of your answer.
Answer:
Since the company controls both production and distribution of its product, it is an example of a balanced vertically integrated strategy.

Vertical integration – is the process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company’s or entity’s power in the marketplace.

Vertical integration – represents an expansion or extension of the firm by integrating preceding or excessive productive processes. That is, the firm incorporates more processes toward the original source of raw materials (backward integration) or to ward the ultimate consumer (forward integration). For this reason the given case is an example of balanced vertical integration.

Question 10.
Read the following case study carefully and answer the questions given at the end:
Historically, the pharmaceutical industry has been a profitable one. Between 2002 and 2006, the average rate of return on invested capital (ROIC) for firms in the industry was 16.45%. Put differently, for every dollar of capital invested in the industry, the average pharmaceutical firm generated 16.45 cents of profit. This compares with an average return on invested capital of 12.76% for firms in the computer hardware industry, 8.54% for grocers, and 3.88% for firms in the electronics industry.

However, the average level of profitability in the pharmaceutical industry has been declining of late. In 2002, the average ROIC in the industry was 21.6%; by 2006, it had fallen to 14.5%. The profitability of the pharmaceutical industry can be best understood by looking at several aspects of its underlying economic structure. First, demand for pharmaceuticals has been strong and has grown for decades.

Between 1990 and 2003, there was a 12.5% annual increase in spending on prescription drugs in the United States. This growth was driven by favourable demographics. As people grow older, they tend to need and consume more prescription medicines, and the population in most advanced nations has been growing older as the post-World Was II baby boom generation ages. Looking forward, projections suggest that spending on prescription drugs will increase between 10 and 11% annually.

Second, successful new prescription drugs can be extraordinarily profitable. For example, Lipitor, the cholesterol lowering drug sold by Pfizer, was introduced in 1997, and by 2006 this drug had generated a staggering $ 12.5 billion in annual sales for Pfizer. The costs of manufacturing, packing, and distributing Lipitor amounted to only about 10% of revenues.

Pfizer spent close to $ 500 million on promoting Lipitor and perhaps as much again on maintaining a sales force to sell the product. This still left Pfizer with a gross profit of approximately $ 10 billion. Since the drug is protected from direct competition by a twenty-year patent, Pfizer had a temporary monopoly and could charge a high price. Once the patent expired, in 2010, other firms were able to produce “generic” versions of Lipitor and the price fell substantially within a year.

Competing firms can produce drugs that are similar (but not identical) to a patent-protected drug. Drug firms patent a specific molecule, and competing firms can patent similar, but not identical, molecules that have a similar pharmacological effect. Thus, Lipitor does have competitors in the market for cholesterol lowering drugs, such as Zocor, sold by Merck, and Crestor, sold by AstraZeneca. But these competing drugs are patent protected. Moreover, the high costs and risks associated with developing a new drug and bringing it to market limit new competition.

Out of every 5,000 compounds tested in the laboratory by a drug company, only five entered clinical trials, and only one of these will ultimately make it to the market. On an average, estimates suggest that it costs some $ 800 million and takes anywhere from ten to fifteen years to bring a new drug to market. Once in the market, only three out of ten drugs ever recoup their R&D and marketing costs and turn a profit. Thus the profitability of the pharmaceutical industry rests on a handful of blockbuster drugs. At Pfizer, the world’s largest pharmaceutical company, 55% of revenues were generated from just eight drugs.

To produce a blockbuster, a drug company must spend large amounts of money on research, most of which fail to produce a product. Only very large companies can shoulder the costs and risks of doing this making it difficult for new companies to enter the industry. Pfizer, for example, spent some $ 7.44 billion on R&D in 2005 alone, equivalent to 14.5% of its total revenues. It is a established fact that it is difficult to get into the pharma industry.

Although a large number of companies were ranked among the top twenty in the industry in terms of sales in 2005, most failed to bring standard products to the market. In addition to spending on R &D, the incumbent firms in the pharmaceutical industry spend large amounts of money on advertising and sales promotion. While the $ 500 million a year that’ Pfizer spends promoting Lipitor is small relative to the drug’s revenues, it is a large amount for a new competitor to match, making market entry difficult unless the competitor has a significantly better product.

There are also some big opportunities on the horizon for firms in the industry. New scientific breakthroughs in genomics are holding out the promise that within the next decade, pharmaceutical firms might be able to bring to market new drugs that treat some of the most intractable medical conditions, including Alzheimer’s, Parkinson’s disease, cancer, heart disease, stroke, depression, anxiety, stress and AIDS.

However, there are some threats to the long-term dominance and profitability of industry giants like Pfizer. First, as spending on health care rises, politicians look for ways to limit health care costs, and there is likelihood of some forms of price control on prescription drugs. Price controls are already in effect in most developed nations, and although they have not yet been introduced in the United States, they could be.

Second, twelve of the thirty-five top-selling drugs in the industry lost their patent protection between 2004 and 2009. By one estimate, some 28% of the global industry’s sales of $ 307 billion was exposed to generic challenge in the United States alone, due to drugs going off patent between 2006 and 2012. It is not clear to many industry observers whether the established drug companies have enough new drug prospects in their pipelines to replace revenues from drugs going off patent.

Moreover generic drug companies, have been aggressive in challenging the patents of proprietary drug companies and in pricing their generic offerings. As a result, their share of industry sales has been growing. In 2005, they accounted for more than half by volume of all drugs prescribed in the United States, up from one-third in 1990.

Third, the industry has come under renewed scrutiny following studies showing that some FDA approved prescription drugs, known as COX-2 inhibitors, were associated with a greater risk of heart attracks. Two of these drugs, Vioxx and Bextra, were pulled from the market in 2004.
Questions:
(a) Drawing on the Five Forces Model of Michael E. Porter, explain why the pharmaceutical industry has historically been a very profitable industry.
(b) There are apprehensions in the pharma industry that its profitability, measured by rate of return on invested capital (ROIC) may decline in the near future. Why do you think it may occur?
(c) What are the prospects and opportunities for the pharma industry going forward? What are the threats that are discernible?
(d) What must pharma industry do to exploit the opportunities? What strategies should the industry adopt to counter the threats?
Answer:
(a) Michael Porter Five Force Model:
a. Threat of new Entrants (low) : The Intensity of this force is low as opening a new pharmaceutical company requires a huge capital investment. It is not possible for everybody to open a pharmaceutical company. Some of the factors that restrict to enter in pharmaceutical industry are as under:

• Product specialty or blockbuster drugs required
• High advertisement and sales promotion cost
• High research and marketing cost
• High manpower cost
• Risk associated with new product development i.e. less success rate in clinical trials, less probability of profitable product etc.
• As per study, out of every 5000 compounds tested in the laboratory by a drug company, only five entered clinical trials and one of these ultimately make it to the market.
• Also, three out of ten drugs ever recoup their R & D and marketing costs and turn a profit.
• In view of large amount of funds, few mega firms only enter into this industry.

b. Bargaining power of suppliers (low):
Generally, good manufacturing companies have their own research and development facilities, so for raw materials they are almost self-dependent. The companies who are depending on the outside suppliers, purchases the goods in quantity from the suppliers which reduces the bargaining power of suppliers.

c. Bargaining power of Buyers (low) :

• Drugs are protected from direct competition by a twenty year patent. Being some of the giants had monopoly power in this industry; there is no option with the buyer to purchase the patented drugs, if prescribed by the medical practitioner.
• Consumption of more prescribed medicines.
• Branded, highly researched and quality products push up the buyers to purchase and redu the bargaining power of buyers.

d. Threat of Substitutes (low to medium):

• Generic version of medicine.
• The Intensity of this force is low to medium. Generic drugs companies have been aggressively challenging the patents of proprietary drugs companies and in pricing their generic offerings.
• As a result, their share of industry sales has been growing. In 2005, they accounted for more than half by volume of all drugs prescribed in United States up from one third in 1990.
• However, for patented drugs, no substitute is available as competing firm can patent similar molecule but not the identical.

e. Competitive Rivalry (low):

• In generic drugs, rivalry is high as compared to patented drugs. Because other companies can’t manufacture those drugs as a specific molecule is patented.
• Competing Firms can produce drugs that are similar (but not identical) to a patent-protected drug.
• Drug firms patent a specific molecule, and competing firms can patent similar, but not identical molecules that have a similar pharmacological effect. Thus, Lipitor dose have competitors in the market for cholesterol lowering drugs, such as Zocor, sold by Merck, and Crestor, sold by Astra Zeneca.
• On other side, once the patent of a particular drug is expired, other companies with patent of identical product or with generic product may enter into the market.

(b) The profitability of pharmaceutical industry can be best understood by looking at several aspects of its underlying economic structure. There are valid apprehensions in the pharma industry that its profitability, measured by rate of return on invested capital (ROIC) may decline in the near future as it come down from 21.6% in 2002 to 14.5% in 2006.. It may occur due to following reasons:

• Major concern of the politicians is to limit healthcare cost and to price control on prescription drugs.
• Many drugs going off the patent make revenues suffer. Company may lose the revenue due to drugs going of the patents. As per the estimate, twelve out of thirty-five top selling drugs lost their patent protection between 2004 to 2009.
• A long gestation period is required in bringing a new drug to the market. The estimates suggest that it takes 10 to 15 years to bring a new drug to the market.
• Threat of risk associated with the prescribed drugs with some disease as per the study conducted like GDA approved prescription drugs, known as COX-2 inhibitors, were associated with a greater risk of Heart attacks.
• High cost of research and development. A large number of pharma companies have failed to bring a standard product to the market. Only three out of ten drugs ever recoup their R & D and marketing costs and turn a profit.
• High costs and risks associated with developing a new drug and bringing it to market limits the competition. Out of 5000 compounds in the laboratory by a drug company, only five enter clinical trials, and only of those actually reach the market.
• Promotion of generic drugs in Government hospitals.

(c) Though the average level of profitability in the pharmaceutical industry has been declining overtime (In 2002, the average ROTC in the industry was 21.6; by 2006, it had fallen to 14.5%), but still the pharmaceutical industry is generating high profits compare to other industry i.e. computer hardware 12.76%; Grocers 8.54%; Electronics 3.88%.

The prospect for the industry for going forward is very positive. Because the demand for pharmaceuticals has been strong and has grown for decades. Between 1990 and 2003, there was a 12.5% annual increase in spending on prescription drugs in the United States. This growth was driven by favorable demographics, i.e., longevity of life has increased in many developed as well as developing countries like India. Projections state that spending on prescription drugs will increase between 10% to 1170 annually.

As people grow older, they tend to need and consume more prescription medicines. Many new drugs need to be produced for ailments and diseases like Alzheimer’s, Parkinson’s, Cancer, heart disease, stroke. AIDS. Then there are health issues related to growing pollution — air, water, and noise pollution. Pollution is contributing a large number of deaths. Anxiety, stress, and other psycho-related prescription drugs can be extraordinarily profitable. High costs and risks associated with developing a new drug and bringing it to the market limit new competition.

There are, of course, threats to the pharma industry as well.
I. The government looks for ways to limit health care costs through some form of price control on prescription drugs. Price controls are already in effect in many countries – developed and developing ones, including India.

II. Renewed scrutiny: some approved drugs have been found to be associated with greater risk of heart attacks. Prescription drugs are always under scrutiny and can become redundant or undesirable, as research evolves.

III. To produce a blockbuster drug, a pharmaceutical company must invest large amount of money, most of which may fail to produce a product.

IV. There is the likelihood of sub-standard products being marketed by unscrupulous drug manufacturers.

V. Unethical practices by drug manufacturers to market their products is a big threat to the industry itself.

VI. Whistle blower policy offers generous incentives to employees of Pharam Company for revealing malpractices in their company. This also pose a great threat.

(d) The Pharma industry must adopt multipronged steps to exploit opportunities. It has to adopt market segmentation strategy. It is especially required for small and specialized firms in the drug industry.

• The firms have to intelligently do product positioning.
• Unique molecule should be developed having similar pharmaceutical effect alike of competitor product.
• The firm have to work upon the new drugs prospects which helps to replace the revenue from drugs going up patents, especially in the new drugs which helps to cure the ailments like Alzheimer’s, Parkinson’s etc.
• On the R&D front, firms usually need to evaluate whether to perform R&D within the firm or to outsource.

The firm may adopt the following strategies : Cost Leadership Strategy: The Industry needs to control the price of prescription drugs as the price controls are already in effect in most of developed nations but it is yet to be introduced in the United States. Cost leadership is only possible till the expiration of Patent. Simultaneously, the firms need to do the extensive research on the new drugs prospects to replace the revenues from drugs going off patent.

Product Differentiation Strategy : Industry can produce the good quality and well researched drugs which helps in differentiating it with the generic products. Industry should do the intensive research on the new drugs which helps to cure the most intractable medical conditions like Alzheimer’s, Parkinson’s disease, Cancer, heart disease, stroke, depression, and anxiety. Stress and AIDS.

Niche/Focus Strategy: Industry should also focus on the various studies which shows that prescribed drugs are associated with serious health diseases like FDA approved prescription drugs, known as COX-2 inhibitors, were associated with a greater risk of heart attacks. These drugs or any such drugs should be pulled from the market on immediate basis.

Question 11.
Read the following case study carefully and answer the questions given at the end:
The automobile industry in India is world’s fourth largest, with the country currently being the world’s 4th largest manufacturer of cars and 7th largest manufacturer of commercial vehicles in 2018. Indian automotive industry (including component manufacturing) is expected to reach ?16.16 – 18.18 trillion (US$ 251.4-282.8 billion) by 2026.

Two-wheelers dominate the industry and made up 81% share in the domestic automobile sales in Financial Year 2018-19. Overall, Domestic automobiles sales increased at 6.71 per cent CAGR during Financial Years between April 2012 and March 2018 with 26.27 million vehicles being sold in Financial Year 2018-19. Indian automobile industry has received Foreign Direct Investment (FDI) worth US$, 21.38 billion between April 2000 and March 2019.

Domestic automobile production increased at 6.96 per cent CAGR during the Financial Years between April 2012 and March 2019 with 30.92 million vehicles manufactured in the country in Financial Year 2018-19. In Financial Year 2018-19, commercial vehicles recorded the fastest pace of growth in domestic sales at 17.55% year-on-year, followed by three-wheelers at 10.27 per cent year-on-year. The passenger vehicle sales in India crossed the 3.37 million units in Financial Year 2018-19 and is further expected to increase 10 million units by Financial Year 2019-20.

The government aims to develop India as a global manufacturing as well as a research and development (R & D) hub. It has set up National Automotive Testing and R&D Infrastructure Project (NATRIP) Centre as well as a National Automotive Board to act as facilitator between the government and the industry. Under (NATRIP), five testing and research Centre have been established in the country since 2015.

The Indian government has also set up an ambitious target of having only electric vehicles being sold in the country. Indian auto industry is expected to see 8-12% increase in its hiring during Financial Year 2019-20. The Ministry of Heavy Industries, Government of India has shortisted 11 cities in the country for introduction of electric vehicles (Evs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme.

The first phase of the scheme has been extended to March 2019 while in February 2019, the Government of India approved the FAME-II scheme with a fund requirement of ?10,000 crore (US$ 1.39 billion) for Financial Years 2020-22. Number of vehicles supported under FAME scheme has increased to 192,451 units in March 2018 from 5,197 units in June 2015.

Automotive industry globally is at the cusp of a major transformation. Growing concerns for environment and energy security clubbed with rapid advancements in technologies for power train electrification, increasing digitalization, evolution of future technologies and innovative newer business Tnodels and ever-increasing consumer expectations are transforming the automotive business.

One of the key facets of such a change is the rapid development in the field of electric mobility which might transform the automotive industry like never before. With an ambition to be among the top 3 in automobile manufacturing by 2026 (as per the Automotive Mission Plan 2016-2026), Indian auto industry needs to consider an innovative and pragmatic approach to ride this transformative wave.

Today, with continued efforts of more than a decade, many major economies such as US, china, Netherlands, Norway etc. have promoted electrification of vehicles through various fiscal and non-fiscal incentives and have now gathered momentum in terms of demand, charging infrastructure and manufacturing econ-system. Such countries are perhaps more ready with pure electric vehicles to achieve their regulatory and strategic targets.

India has started late on the electrification path and needs a strong policy to catch-up and move rapidly towards the stated goal of total pure electric technology regime. Pure electric vehicle penetration currently remains quite low in India due to several reasons including significant affordability gap and low level of consumers’ acceptance (i.e. lack of demand), low level of electric vehicle manufacturing activities (i.e. lakh of supply), lack of comparable products (especially in the 2w category), non-existent public charging infrastructure etc.

Taking cognizance of the advancements in the electric vehicle technology, markets development globally and a dire need to reduce energy demand and de-carbonization of the auto sector in India NITI Ayog’s transformative mobility report of 2017 has set out a desirable and ambitious roadmap for pure electric vehicles, wherein, it is said that if India adopts a transformative solution of shared connected electric mobility, 100% public transport vehicles and 40% of private vehicles an become all electric by 2030. This vision needs to be expanded to have a future of all electric vehicles.

To make sure that this vision is realized, the industry, government and various stakeholders will need to collaborate and invest. Most importantly, the long-term plan for the country for such an endeavor will have to be implemented with full conviction, hundred percent commitment and total perseverance. As the electric vehicle technology is evolving rapidly, it could be possible that transition to hundred percent electric vehicle regime might evolve earlier than envisaged in the stated vision.

Therefore, the policy will need to be necessarily adaptive while at the same time must not bring sudden changes so as to allow outcomes in a planned manner and to ensure that the necessary transformation takes place with the minimum of disruption which may have socio-economic impact in terms of industrial growth, employment and livelihood of people in the auto-industry.

Auto-industry will invest with a proper business case even with a certain degree of risk around market readiness of electric vehicles. In not so distant, future, such investments are likely to turnaround the electric vehicle scenario in an opportunity. Such investments will run into thousands of crores for the auto-industry towards creating a sustainable market place and a robust manufacturing eco-system for electric vehicles. Already, many automobile manufacturers and auto-component manufacturers in India have launched or announced their plans to develop electric vehicles and related components. Businesses, including the public sector
companies, will be looking at setting-up the entire supply chain including cell manufacturing in the country.

It is important to understand the ‘consumers’ outlook and concerns as to why growth of market for electric vehicles has been sluggish. The single major factor for slow penetration of EVs is their high price which is around 2 to 2.5 times more than a comparable conventional vehicle.

The other important concern of EVs is their range per change. To offer a higher range, higher battery capacity in the vehicle is needed which lead to increase in the EV price proportionately and increases the price At the same time, however, EV offer a significant advantage on operating cost (running plus maintenance cost) which could be as low as 1 /4th of that of a conventional vehicle.

As compared to a personal vehicle, commercial vehicles like taxi fleets, bus fleets, 3-wheelers run 4 to 5 times longer distance per day. Therefore, for such higher mileage vehicles savings on operating cost will pay-back the initial high purchase price faster than low mileage vehicles. Attractive power tariff can play a significant role to offset capital cost of buying EV with lower operating cost at faster pace.

Most of the personal vehicle buyers consider upfront purchase price, fuel efficiency, maintenance and service cost, comfort features as the key buying criteria. However, commercial vehicle buyers consider capital expenditure (GAPEX) plus operational expenditure (OPEX) cost economics as the most important buying criteria.

It may be noted that automobiles have product development gestation of minimum of 3 years and product manufacturing life-cycle of around 8 to 10 years. Therefore, it is important to understand the level of effectiveness of each policy measure and acceptability of the policy measures from a long-term implementation perspective.

In this respect, a mix of policy measures which are equitable, implementable and can be sustained on a long-term basis with minimum fiscal burden and maximum impact and outreach. It may be noted that various policy measures have different level of impact on the market and their criticality. The policy measures which result in acceptance of electric vehicle technology are the most critical.
Questions:
(a) Explain in detail the components of SWOT analysis and also discuss in brief the SWOT analysis of present Automobile Industry?

(b) “In a country like India, electric vehicles are need of the hour”. Outline the opportunities for electric vehicles in India.

(c) What should be the policy measures and recommendations to provide impetus to the Electric Vehicle industry that would counter the impending threats.

(d) As a Company Secretary, what would be your suggestions for the Government for increasing the usage of Electric Vehicle in the Country through regulatory initiatives.
Answer:
(a) A SWOT analysis is of immense assistance for brainstorming, strategic planning and decision making. It is a very important tool for starting of new projects, ensuring their proper progress by monitoring their stages of development and implementing changes in the project, whenever required.

This tool allows multidimensional analysis of the current subject’s conditions of a business organization as well as internal and external factors to maximize the benefits, minimize negative consequences of certain actions and the most importantly to ascertain whether the objective is attainable or not. It is an effective strategic development procedure that links internal organizational strengths and weaknesses with external opportunities and threats. The following are the components of SWOT analysis:

Building on Strengths:
SWOT analysis involves identifying the strengths of a company in comparison to its competitors. Strengths come from the knowledge, abilities, and resources available to the firm that gives it a competitive advantage in the industry. Some of the major strengths are an excellent sales staff with strong knowledge of products, robust customer relationship, innovation, etc.

Major strengths, in the present case of Automobile Industry, are as under:

• Growth in sales of commercial vehicles, three wheelers and passenger vehicles.
• Size of the market and forecasted growth.
• Foreign Direct Investment in Indian Automobile Industry since April, 2000.
• Infrastructure set-up by Government i.e. National Automotive Testing and R&D Infrastructure Project (NATRIP) Centre as well as National Automotive Board.
• Sanctioning of huge corpus of funds for quick implementation of Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India (FAME India) scheme.

Minimizing Weaknesses:
Weaknesses are any limitation or deficiency in the firm’s resources and competencies that could hinder its performance. A business r eeds to identify the vulnerabilities within its organization that competitors could exploit. Common reasons of a Company’s weakness include ineffective management, paucity of resources and assets, inefficient processes, etc. Major weaknesses, in the present case of Automobile Industry, are:

• High Price of Electric Vehicles as compared to conventional vehicles.
• Non-existence of Public Charging Infrastructure.
• Significant affordability gap and low level of consumers’ acceptance.
• Low supply of electric vehicles.
• Lack of comparable products.

Seizing Opportunities:
A business is required to determine potential opportunities to be pursued in the industry. There may be plentiful opportunities in an industry that may call for pondering over opportunities by the management of a company while evaluating their effectiveness. Potential opportunities can result from identifying an overlooked market segment, changing industry regulations, advancements in technology, improvement in buyer supplier relation, etc. Moreover, a business can exploit the weakness of its competitors by targeting their frail position to gain market share.

Major opportunities, in the present case of Automobile Industry, are:

• Government targets for 100% public transport vehicles and 40% of private vehicles by 2030, indicate that near future is full of opportunities in Electric Vehicle (EV) sector. Government is announcing several benefits and subsidies to increase usage of EVs.
• Setting-up of entire supply chain including cell manufacturing in the country.
• Commercial vehicles like taxi fleets, bus fleets, 3-wheelers run 4 to 5 times longer distance per day which would lead to increase in demand for commercial vehicles and also, the less cost burden on the passenger/goods will trigger the demand for commercial vehicles.

Counteracting Threats:
Any situation that puts a company in an unfavorable position or impedes its efficient operations can be classified as a threat. To adequately identify these situations, the organization needs to evaluate the macro-environment and assess the industry’s social, economic, political, technological, natural and international segments.

For instance, changes in customer preferences or advancements in technology can render a product or service obsolete. Additionally, economic and regulatory changes or the exhaustion of natural resources can make production infeasible. Global competitors are entering into the Company’s market which tends to increase competition in domestic market.

Major threats, in the present case of Automobile Industry, are:

• Government Policy to bring sudden change may have socio-economic impact in terms of industrial growth, employment and livelihood of people in the auto industry.
• Many major economies like US, China, Netherlands, Norway, etc. whose EV products are well developed with a decade of continuous efforts may enter in the Indian market.
• Low level of consumer acceptance of electric vehicles may impact the sales growth of this industry. If government makes it mandatory to purchase EV then scrapping of huge quantity of conventional vehicle will pose a challenge.
• Slow diffusion of technology leading to lack of capacity utilization.

(b) Opportunities for electric vehicles in India are as under:
1. Government targets for 100% public transport vehicles and 40% of private vehicles by 2030 thereby giving an indication that near future is full of opportunities in EV sector.

2. Rapid urbanization has increased the demand for energy and transport infrastructure.

3. India’s commitment to address the issue of climate change necessitates the adoption of alternative fuels for environmental sustainability.

4. The shift towards renewable energy sources has led to cost reduction from better electricity generating technologies, thereby creating the possibility of clean, low-carbon and inexpensive grids.

5. Setting-up of entire supply chain including cell manufacturing in the country provides another set of opportunities. Advances in battery technology have led to higher energy densities, faster charging and reduced battery degradation from charging. Combined with the development of motors with higher rating and reliability, these improvements in battery chemistry have reduced costs and improved the performance and efficiency of electric vehicles.

6. EVs with their fully developed ecosystem of charging and maintenance are key to the concept of smart cities in India.

7. High expenses on oil import in the changing geopolitical conditions require India to ensure its energy security by moving towards alternative energy sources.

8. The existing mode of transport for last mile connectivity like auto-rickshaw and feeder buses suffers from capacity constraint. These vehicles need better management and should be considered as the first area of transformation to e – vehicles.

9. Commercial vehicles like taxi fleets, bus fleets, 3-wheelers run 4 to 5 times longer distance per day which leads to increase in commercial vehicles on road and also, the less cost burden on the passenger/goods as well.

10. To create awareness among the general public about the key benefits of electric vehicle provides a big opportunity for media and advertising agencies.

11. Automobile sector giants which have expertise can support the government initiatives and get the benefit of Government schemes like FAME, NATRIP, etc.

(c) It is very much critical to bridge the gaps for each vehicle segment as well as for different types of users. Therefore, a multi-pronged, segment and customer specific policy is needed. The policy should collectively aim at improving affordability and acceptance of electric vehicles by the following approaches mentioned below:

Bridging the viability gap:
Demand incentives or cash subsidies can at best be a short-term measure to kick- start the process. However, tax rebates and other fiscal & non-fiscal measures can be sustained over a longer term and will have a greater impact and outreach. For next few years, there will be a need for all such measures to collectively bridge the gap and make EVs a preferred choice for the consumers.

Creating infrastructure to charge electric vehicles:
Proper and suitable charging infrastructure will need to be in place. Based on use, location and density of electric vehicles, a combination of slow and fast chargers will be required. Charging infrastructure requires substantial installation, operation and maintenance costs and can also incur significant costs for land procurement (in India land is a premium).

Demand aggregation of home and workplace chargers (AC charging) can act as a lever to reduce prices as well as to have such charges installed at a mass level. Energy Efficiency Services Limited (EESL) and other such government agencies can run a program for procurement of AC c+iargers in bulk and offer at affordable prices to individual users, RWAs and Corporate.

Encourage domestic manufacturing – Make in India:
A world class manufacturing base with a competitive strength in terms of scale, quality, cost and technology for electric vehicles and their critical components will be a must to achieve the stated goal of hundred percent electric regime. Production of Battery at lower cost and higher efficiency will make EVs cheaper as Battery constitutes one third of the cost of EVs. Without Indigenous battery production, India will be constrained to bring about EV revolution.

Public awareness:
Studies have suggested that awareness of electric vehicles is low which included familiarity with technology, lack of knowledge related to government’s schemes, lack of awareness of economic benefits, etc. For the technology to be known and its impression to get formed, a multidimensional approach is needed to create the awareness.

(d) Suggestions to the government for increasing the usage of Electric Vehicles in the country through regulatory initiatives:
1. Through support and regulations, launch home, multi-units dwelling and work place charging schemes/policies. Demand aggregation of home and workplace chargers (AC charging) can be a great lever to reduce prices as well as to have such chargers installed on a mass scale.

2. For corporates/employers, accelerated depreciation on such infrastructure can be provided as a tax relief measure. Individual users can be provided income tax relief to the extent of the cost incurred on procuring charging equipments.

3. At workplaces, employers can be incentivized to allow employees to charge at subsidized rate. Creation of charging infrastructure may be considered as part of Corporate Social Responsibility (CSR) to encourage investments by corporates.

4. Regulations should be passed that will mandate provision of AC slow charging points in parking areas of residential buildings, workplaces spaces, shopping malls, commercial complex, etc. Considering “Smart Cities” to have charging infrastructure as an integrated component of development.

5. Electricity related Acts need to be amended to allow resale of electricity by third party for facilitating setting-up of charging infrastructure.

6. Regulations need to be put in place to ensure availability of stable and good quality power for EV charging.

7. Different segment of vehicles (2W, 3W, PVs, CVs) may require different type of charging standard (& connector), however, the charging infrastructure, at-least at public places, should be common to the extent possible to reduce the infrastructure cost.

8. Energy companies (like IOCL, HPCL, IGL, NTPC, BHEL, GAIL, etc.) may invest in providing a charging network, specially the fast charging stations at inter-city routes like State and national highways. This could also be based on renewable electricity sources.

Multidisciplinary Case Studies CS Professional Notes