Blue Ocean Strategy - Book Review

For Strategist prepared by: Anuj Gupta [pg07anuj_g@mdi.ac.in]

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A Blue Ocean is a market space that is created by identifying an untapped set of customers, then delivering to them a compelling new value proposition. This strategy is a way to make the competition irrelevant by creating a leap in value for both the company and its customers. This is done by modifying what is on offer so as to balance the customer needs and the economic cost of meeting those needs. This is as opposed to a Red Ocean, where the market is well defined and heavily populated by the competition. All parties in these markets are engaged in an intense competitive struggle for the same customers, with different and incremental yet easily comparable, value propositions.

The authors, W. Chan Kim and Renée Mauborgne have made a real contribution to advancing the thinking on business strategy, and they have this with a style which does not even make this book a rather dull strategy book. They offer a set of practical frameworks and models that lucidly explains what appears to be fairly obvious points, but are in reality profound insights and breakthrough contributions.

The Blue Ocean strategy is all about avoiding head-to-head competition. Because established markets in the developed world are saturated, head-to-head competition cannot bring attractive returns. At first read, it is so easy to understand and so intuitively obvious, that one is left wondering why everyone doesn’t adopt this approach. By the end of the book, you are left thinking if anyone is able to adopt this approach on a systematic basis. For to do so requires a broad set of multi-disciplinary skills as well as fresh thinking about even the most mundane and pedestrian options. It requires both discipline and inspiration.

Cover Story - Tobacco Industry Analysis

For Strategist prepared by: Valmik Mirani [pg07valmik_m@mdi.ac.in], Monil Chheda [pg07chheda_a@mdi.ac.in]

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OVERVIEW OF THE INDIAN TOBACCO INDUSTRY

India is one of the major producers of tobacco in the world - ranking third with a production of about 600,000 tonnes, after China (3,000,000 tonnes) and USA (700,000 tonnes). India is the fourth largest consumer of tobacco in the world. Many types of tobaccos are grown in India (not all are used for cigarettes). Of the total production, about 30% is of flue-cured virginia (FCV) and the rest is non-virginia type. The later variety includes bidi, natu, burely, chewing, hookah, cigar and snuff varieties. Tobacco is mainly cultivated in Andhra Pradesh, Gujarat, Karnataka and Uttar Pradesh. Some 5 mn people are engaged in tobacco cultivation while another 26 mn are dependent directly or indirectly on the tobacco industry. A substantial part of government's tax revenues (over Rs 60 bn) is drawn from tobacco. While cigarettes contribute nearly 90% of the revenue on tobacco, bidis and others make up for the balance 10%.
Chewing tobacco has been a tradition in India for centuries. Of the total amount of tobacco produced in the country, around 48% is in the form of chewing tobacco, 38% as bidis, and only 14% as cigarettes. Thus, bidis, snuff and chewing tobacco (such as gutka, khaini and zarda) form the bulk (86%) of India's total tobacco production. In the rest of the world, production of cigarettes is 90% of total production of tobacco related products.

Despite being the third largest producer, India is only the ninth largest exporter of tobacco and tobacco products in the world. Out of the total tobacco produced in India, only one-third is flue-cured tobacco suitable for cigarette manufacturing. Most of the tobacco produce is suitable for the manufacture of chewing tobacco, bidis and other cheap tobacco products, which have no demand outside the country

The per capita consumption of cigarettes in India is merely a tenth of the world average. This unique tobacco consumption pattern is a combination of tradition and more importantly the tax imposed on cigarettes over the last 2 decades. Cigarette smokers pay almost 85% of the total tax revenues generated from tobacco.

MAJOR PLAYERS IN INDIA
In India, three major cigarette players dominate the market, primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with 8% share of the market.

ITC:
ITC Limited (ITC) is one of India's foremost private sector companies. ITC has a diversified presence in cigarettes, hotels, paperboards and specialty papers, packaging, agri-business, branded apparel, packaged foods and confectionery, greeting cards and other products. The company is headquartered in Kolkata, India. For the fiscal year ended March 2006 ITC Limited generated revenues of $2,914 million.

GODFREY PHILIPS INDIA LTD:
Godfrey Phillips India Ltd is one of India’s leading cigarette manufacturers. The company’s brands include Red and White, Four Square, Jaisalmer, Cavanders, Tipper and Prince. One of Godfrey Phillips major stakeholders is Philip Morris. It is headquartered in Delhi, India. In the fiscal year ended March 2006, Godfrey Phillips reported sales (net of excise) of $169 million, a 22% increase on the previous fiscal year.

VAZIR SULTAN TOBACCO COMPANY:
Vazir Sultan Tobacco Company is more commonly known as VST Industries and has collaboration with the BAT Group UK. The company manufactures and distributes cigarettes under the brands names of Charms, Charminar, and Gold. The company is headquartered in Hyderabad, India .

MARKET OVERVIEW & GOVERNMENTREGULATIONS
The Indian tobacco market generated total revenues of $9.9 billion in 2007, this representing a compound annual growth rate (CAGR) of 6.6% for the five-year period spanning 2003-2007.

The cigarette industry is expected to grow at a modest rate only of around 1 to 2% or less as a result of the government policies, growing public awareness against the product and the ever increasing tax levies. India's per capita consumption of tobacco is less than half of the global average of 0.8 kg to 1.8 kg (incidentally, China's is around 2.62 kg). The number of tobacco smokers in India is placed at 250 mn. Cigarettes, although an urban phenomenon, have steadily penetrated into the rural areas.
The Indian excise tariff on cigarettes is higher than the rates prevailing in other countries. High excise duties have resulted in the expansion of the cheaper non-cigarette tobacco segment. The government has made legislative interventions to curtail the use of tobacco products. It has prohibited sale of tobacco products within a distance of 100 metres of schools, educational institutions, hospitals and medical institutions and smoking in public places. It has also banned all forms of tobacco advertising and insists on statutory warning on all packages of tobacco products, as being injurious to health in a manner which makes it prominent and effective.

Organized cigarette sales in the country are declining but the tobacco consumption is rising. Cigarette sales in the organized sector declined by 4% between 1996-97 and 2001-02. Lately it is growing at around 1.5% to 2% a year. But contraband trade in cigarettes is said to be rising at a substantially high rate. Contraband's entry into the market is routed through Nepal and Bangladesh. Mumbai alone accounts for nearly half of all contraband cigarettes into the country.

MARKET VOLUME
The Indian tobacco market grew by 1.1% in 2006 to reach a volume of 99.1 billion sticks. The compound annual growth rate of the market volume in the period 2002-2006 was 2.6%.

Source: Datamonitor

MARKET SHARE
ITC is the leading companies in the Indian tobacco market, holding a 72% share of the market's volume. Godfrey Philips accounts for a further 12% of the market's volume.
Source: Datamonitor

References
Datamonitor
www.whoindia.org

Nokia - Made for India!

For Strategist prepared by: Arpit Vishwakarma [pg07arpit_v@mdi.ac.in]

A brief introduction of Nokia India:

· A Finnish multinational corporation - the world’s largest manufacturer of mobile telephones
· Entered the Indian market in the year 1994 amidst very stringent telecom policies
· Current market share of about 79%
· In 2006-2007, had 1,300 outlets in 400 cities in India
· Plans to have 2,000 outlets in 700 cities by 2010
· Chosen as 'the most respected consumer durables company' in India by the weekly magazine Business World in 2004

The reasons for Nokia's stupendous success in India include amazing branding, a focused marketing exercise and distribution strength, among others. If we try to recall a few things about Nokia, the things that come up to the mind are:
· Made for India campaign – with TVCs of Nokia 1100 tied to a truck
· Human Technology campaign – easy to use, association to emotions, curvy
· Har jeb mein rang – inspiring people to have a colour mobile handset
· Hindi text and SMS, talking alarm etc.

All these features reinforce the ‘customer oriented’ aspect of the company. Many of these features are tailor made for the Indian market and have been achieved after in depth research. Better understanding of the Indian consumer has given the company an edge over its competitors like Motorola which focused on cutting edge technology but in turn lost out on user-friendliness.
Focusing on the mobile phone market, establishing crucial distribution partnerships, making early investments in manufacturing and brand-building, and developing innovative product features are the basic reasons for the success of Nokia.

No wonder Nokia jumped into 4th position of Brand Equity’s survey of the most trusted brands in India in 2007:

As part of its distribution strategy, Nokia has ensured that it has a presence in all 2,000 cities and towns that have cellular coverage. Nokia's distribution network of over 30,000 outlets is roughly double that of its rivals, according to industry sources.

In partnership with HCL, Nokia has introduced phones at all price points, right from the mass market entry-level phones to the mid-market colour and camera phones and also the high-end exclusive phones. Nokia has very wide range of models enabling more than one choice of handset for every price point.


Brand building
Among the more recent initiatives taken by the company to build up its brand further are things like using Shah Rukh Khan as brand ambassador. This is the first time something like this has been done for a brand that has all along talked leadership and technology. "He has a pan-India appeal and in smaller markets, a huge connect. We took a calculated shot on SRK helping us explode the rural market for us." as the Nokia management points out. Educating the rural masses about usage of various applications in Nokia handset is being done through Nokia vans. Also a new initiative of using Nokia handsets as substitutes of STD – PCOs in villages is being tried out.
Nokia's media planning tries to ensure that targeted category consumers get to see the ads meant for them, through a selection of different channel clusters. For entry level, they target a Doordarshan sponsorship on one-day cricket. For N95 they target Discovery, English movie channel and news channels.
Beyond advertising, Nokia is trying to create more touch points through its concept stores, already opened across several major metros and cities, and a showcasing of its higher end products via malls and road shows.
On the basis of observed facts and the past record, the SWOT of Nokia can be drawn in general something like:

Source: Datamonitor

Nokia Brand worth – a qualitative attempt
If we try to find out the brand worth of Nokia using the framework of Interbrand Brand Strength Formula, the probable radar of the Nokia as under different attributes comes out to be something like


The allotment of figures is basically qualitative and not absolutely correct. However, the thought behind it is basically based on observations and secondary data and tends more towards a relative scale.
Leadership is basically a brand’s ability to influence its market and be a dominant force with a strong market share such that it can set price points, command distribution and resist competitive invasions. Nokia scores high on most of these although competitive invasions are always possible in a technology and innovation driven industry.
Stability is basically sustainability of a brand based on customer loyalty and past record. Again Nokia scores high on these fronts.
The brand’s trading environment in terms of growth prospects, volatility and barriers to entry basically explains the ‘market’. The growth prospects of Indian mobile handset market are very encouraging and with and barriers to entry are high basically because of many big brands already in the market.
Geographic spread of Nokia is high as observed in outlets and service centers and ‘trend’ which basically explains the brand’s ability to remain contemporary and relevant to customer is also decent. This again is diminished by highly technologically intensive industry.
Support, which is the amount and consistency of marketing and communication activities in case of Nokia, has been very coherent. The TVCs have been very effective and brand equity is very high. The brand also enjoys high ‘protection’ by law for its legal titles.

Conclusion
The basic drivers for success of Nokia in India have been its adaptation backed by strong skills and experience it gained in China. The various campaigns like human technology made for India etc which actually got reflected in the product, promotion and the pricing and together with a sound distribution system have been the reasons for its success. These actually resulted in building up a great brand Nokia which almost every Indian considers to be his trusted and understanding friend.


References:
http://www.economictimes.com/
http://www.indianbrands.com/

Interview - CSC Senior Project Manager

For Strategist prepared by: Shilpa Gupta [pghr07shilpa_g@mdi.ac.in]

Person Interviewed
Name: Rashmi Gupta
Designation: Senior Project Manager
Company: CSC, Noida
Experience: 11 years

What strategy should be followed by the new start ups in IT sector?
The new start ups in IT sector should first of all do the market study. As the current market is saturating and declining. Thus to survive in this sector requires lots of cost cutting at the employees end as well as the location. The company has to adopt low cost strategy. The employer should search for the location where the cost of the land and setting up the infrastructure does not cost too much. They should locate the industry in small cities to avail the location benefit. The employees should be the people who don’t expect hefty pay packages. Nowadays IT companies are also picking up the BCom and BSc degree holders also to cut the money spent on salaries. The new start ups should also employ people from the BSc Physics and BCA graduates at the entry level and should train them in the language required for the project. The project manager should be some experienced person who has worked in some big IT industry so that he can handle the intricacies of the project. The projects bagged should be international as well as domestic. The emphasis should be on capturing the domestic market as well because of the declining dollar value.

What is the best strategy that a company should follow in IT in today’s competitive world?
The IT sector is really down nowadays so the company should focus on building strong bond with the customers. They should emphasize on long term relationship with the customers. They should leverage the existing relationships for new projects. The relationship should be built on trust and quality. They should make their customers believe that the amount they are paying for the project is really value for money. They will get the quality deliveries on time.

What do you think the companies nowadays really follow the concept of core competencies?

They really venture only in the field of their core competencies?
In the IT industry the companies generally venture into their own field of expertise that is in their core competency. For example CSC core competency is support. CSC major projects are of support which makes it among the top consulting companies in IT. The BPO companies generally venture into in this field if they have core competency in customer relationship. Moreover it is really appropriate for a company to enter the market with their core competency to succeed in this competitive world.

Do you feel that long term strategies can be made in the IT Company in today’s dynamic world?
Today’s world is really dynamic. The IT sector was on such a boom. The Indian GDP was increasing because of boom in outsourcing Information technology and IT-enabled services. The death of this industry is far from anyone's horizon. But the market is dying slowly because of rising wages. So long term strategy is very difficult to make. The strategy has to keep changing according to the market.

What went wrong at P&G?

For Strategist prepared by: Anand Mohan Sharma [pg07anand_s@mdi.ac.in]

P&G found out that main problem the people had while taking chips on picnics/outings or having them for long storage for long distance market catering was that they would 'perish'. And hence chips manufacturers catered to only local customers. There was no big brand. So it decided to make them with a special coating so that they remain fresh for long time and packaged them in a strong cylindrical box to bear transportation jerks. Thinking it would soon make itself as the first real chip brand, P&G was saddened to find that the sales were very low, and only few people that too many of them old were buying it.
Being a manager, now how would you analyze the case and help P&G out?