Cases in Strategic Management: Creativity and Innovation Perspective 9385965743, 9789385965746

Table of contents :
Title
Contents
Theme I
1 Backpacker's Hostel
Theme II
2 Passionate Zomans
3 Dr. Reddy's Laboratories: Entry in German Market
Theme III
4 Linking the World's Professionals
5 Airtel Zero
Theme IV
6 Button Dabao, Truck Bulao
7 M&M: Logan and International Expansion
Theme V
8 Micromax: Leveraging Scales
Theme VI
9 On-Demand Logistics: Shipsy
Theme VII
10 Smart + Activity
11 Videocon: Rise From the Ashes
Theme VIII
12 Indian Starbucks
13 Emami: Establishing Manufacturing Plant Overseas
Theme IX International Strategy
14 Flipkart: Amazon of India
15 Hero MotoCorp: Manufacturing Happinesson a Global Scale
Theme X Strategic Implementation
16 The IPL Era
Theme XI Strategic Control
17 AutoNcab: Redefining Travelling
Theme XII Change and Turnaround
18 Greymeter
Theme XIII Creativity and Innovation
19 Routofy: Building a Systemic Innovation Capability

Citation preview

About the Authors Sanjay Dhir is the Chairman and Assistant Professor in Strategic Management Area at Department of Management Studies (DMS), IIT Delhi. He is a Fellow (PhD) from the Indian Institute of Management (IIM) Lucknow. He has been involved in several consulting projects that include - Integrated Child Development Services (ICDS, Bihar); Bihar Prashashnik Sudhaar Mission (BPSM, Bihar) and Directorate General of Supplies & Disposals (DGS&D, GoI, New Delhi). He has been awarded 2014 AGBA Fellow (by Academy for Global Business Advancement, USA). He is also a core committee member of Government of India’s project – ‘Unnat Bharat Abhiyaan’. He has published several research papers in leading international journals and also published case studies in Ivey, jointly distributed by Harvard Business Studies. Swati Dhir is working as Assistant Professor in OB/HRM area at Indian Institute of Management Ranchi. She is a Fellow from IIM Lucknow, specializing in Human Resource Management and BTech from Uttar Pradesh Textile Technology Institute, Kanpur in Textile Technology. She has published many research papers in national and international journals and presented in prestigious conferences. She is passionate about teaching and research has been actively involved in designing and execution of different training programs, MDPs and consulting projects. Sushil is Deputy Director (Operations) and Abdulaziz Alsagar Chair Professor (Professor of Strategic, Flexible Systems and Technology Management), Indian Institute of Technology Delhi. He has served as visiting professor and delivered seminars in many leading universities, such as University of Minnesota, Stevens Institute of Technology, Université Paris 1 PanthéonSorbonne, etc. He has served as Independent Director on the Boards of RINL, HSCC, and River Engineering. He has acted as consultant to both governmental and industrial organizations. He is the Founder President of the professional body, ‘Global Institute of Flexible Systems Management’. He has been awarded 2014 AGBA Fellow (by Academy for Global Business Advancement, US) and Mindshare Human Rights Award 2015.

Sanjay Dhir Assistant Professor Department of Management Studies, IIT Delhi Swati Dhir Assistant Professor Indian Institute of Management Ranchi Sushil Professor Department of Management Studies, IIT Delhi

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Preface The significance of ‘Strategic Management’ is widely acknowledged by academicians, practitioners and policy makers. The well-established foundations of strategy can build competitive advantage of firms, which needs to be sustainable. And yet numerous firms find the formulation and execution of strategy difficult to articulate. In the past decade, the focus of strategic management has shifted to emerging markets especially China and India. Particularly, the corporates and businesses are constantly evolving. The reason is quite simple – India is one of the fastest growing economies of the world and a very unique and challenging market. Managing businesses in India requires an unconventional approach, which has been a lacuna in the majority of extant casebooks on Strategic Management. It is in this light that this book provides a collection of cases aimed to provide students with the unique Indian context of Strategic Management from established corporates to startups. The book also presents the creativity and innovation aspects of strategic management, which has been the focus of companies lately. A student of business with tact Absorbed many answers he lacked. But acquiring a job, He said with a sob, “How does one fit answer to fact?” The above ballad by the renowned poet Charles Gragg is very famous for its characterization of the demerits of business students who are not exposed to the pedagogy of case study. Strategic skills are merely not developed by lectures and sound advices. Moreover, the wisdom of strategy, creativity and innovation cannot be passed on by lectures and readings alone. The diagnosis, analysis, judgment and situation-specific actions are always unique for different contexts and situations. This is achieved by case studies and thus has been a powerful pedagogy to teach strategy to business students in learning by doing. The two-pronged benefits of case study is to enhance the analytical skills of students as well as provide various means by which firms and managers actually face situations and respond them. Thus, a case study not only provides detailed information about the firms but also the problems in different industries, which firms have to tackle. The cases in this book include a wide spectrum of industries from hotel, online food ordering, pharmaceutical, social media, telecommunications, logistics, automotive, mobile, gaming, consumer electronics, coffee, FMCG, e-commerce, sports, job portals to travel portal,

vi

Preface

which have been chosen to provide a wide purview of understanding of strategic management concepts to students. Moreover, of the 19 cases in this book, 9 cases are on start-ups. These include Zostel, Zomato, Moovo, Shipsy, Smartivity, Flipkart, AutoNCab, Greymeter, and Routofy. All the 19 cases illustrate the varied concepts of strategic management from – vision/mission, general environment analysis, industry analysis, competitive advantages, cost leadership, differentiation, business level strategy, corporate level strategy, strategic implementation, international strategy, strategic control, change management, and innovations and creativity. The cases are not disguised to provide the students the realisation of the company as well as industry. The information on all cases has been from secondary sources, which are available in public domain. The research includes in-depth analysis of industry reports, annual reports, financial data, government reports, news articles and information from databases to provide an eclectic picture of the cases chosen. In addition to above, teaching notes for all the 19 cases have been provided as comprehensive supplementary resource for instructors. They include the questions for classroom discussion along with detailed analyses of those questions. The cases as well as teaching notes have been tested in the classes of strategic management with IIM and IIT students. The target audience of this casebook includes students of MBA and Executive MBA who specialize in strategy. This book can be used in Strategic Management classes as a primary case text. Entrepreneurship, New Venture Planning and Innovation/Creativity classes can use this book either as a secondary text or as a principal text to focus on start-ups and their strategy. In addition, Macro Organisational Behaviour classes can use this book as secondary text for design, system and structure related issues. Finally, professionals, entrepreneurs and consultants will find this book useful as a resource to better understand the unique Indian context of strategic management and gain insights in their respective fields. We hope that you would find this book developed using the above approach useful. We thank you for using this book and invite your valuable feedback, suggestions and reviews of cases based on your experience in the classrooms. Please write to us at [email protected]. Sanjay Dhir Swati Dhir Sushil

Acknowledgements We thank the Department of Management Studies, Indian Institute of Technology, Delhi, and Indian Institute of Management, Ranchi, for providing the necessary resources to write this book. We also specially thank the team of McGraw-Hill Education – Hemant K Jha and Parimala Ravikiran – for their patience and support with utmost grace and professionalism. In addition, we thank our academic colleagues as well as industry friends for providing their valuable suggestions to enrich the cases. We also appreciate the efforts and inputs from our students of MBA at DMS, IIT Delhi and IIM Ranchi without whom these cases would not have been possible. Last but not the least, we also thank our family members, who have provided constant support and motivated us to complete this case book. Sanjay Dhir Swati Dhir Sushil

Contents About the Authors Preface Acknowledgements

ii v vii Theme I Vision / Mission

Case 1. Backpacker’s Hostel

3

Theme II General Environment Analysis Case 2. Passionate Zomans Case 3. Dr. Reddy’s Laboratories: Entry in German Market Theme III

Industry Analysis

Case 4. Linking the World’s Professionals Case 5. Airtel Zero Theme IV

15 27

39 54

Competitive Advantage of Resource and Capability

Case 6. Button Dabao, Truck Bulao Case 7. M&M: Logan and International Expansion Theme V

65 72

Cost Leadership

Case 8. Micromax: Leveraging Scales

93

Theme VI Differentiation Case 9. On-Demand Logistics: Shipsy Theme VII Case 10. Smart+Activity Case 11. Videocon: Rise From the Ashes

103 Business Level Strategy 115 125

x

Contents

Theme VIII

Corporate Level Strategy

Case 12. Indian Starbucks Case 13. Emami: Establishing Manufacturing Plant Overseas

135 149

Theme IX International Strategy Case 14. Flipkart: Amazon of India Case 15. Hero MotoCorp: Manufacturing Happiness on a Global Scale Theme X

157 167

Strategic Implementation

Case 16. The IPL Era

181 Theme XI Strategic Control

Case 17. AutoNcab: Redefining Travelling Theme XII

197

Change and Turnaround

Case 18. Greymeter

207 Theme XIII Creativity and Innovation

Case 19. Routofy: Building a Systemic Innovation Capability

219

Theme I Vision/Mission

Case 1. Backpacker’s Hostel

Backpacker’s Hostel

Case Context Zostel is India’s first chain of backpacker’s hostels. A company that claims not to have a corporate environment, made up of seven people having a passion for travel and entrepreneurship and an adventure bug to set up this startup in late 2013. They believe that travel is a form of meditation, a way of knowing yourself deep down–something, which has profound effect on the way, you think and act in life. Their vision is to create an enterprise that changes the travel and hospitality scenario in India; their sole ambition is to make people travel more and to change the way India travels by wiping off all the muck present in this sector. They believe in a simple philosophy of life–to live doing what they love while trying to leave their mark by changing the face of travel and tourism sector. They wish to create a strong community of travellers and entrepreneurs, a community that can bring in a revolution. It may sound too good to be true, but it is a dream in progress. INTRODUCTION Started on Independence Day in 2013, Zostel was the first chain of backpackers’ hostels in India. Seven men between the age of 23 and 26 from IIMs and IITs came up with a vision to change the view of Indians towards hospitality. What connected these men and led to the formation of this company was their love for travelling. According to founders of Zostel, “The inspiration of Zostel came during an Europe based internship exchange program.” The co-founders during their backpacking experiences in Europe and US enjoyed comfortable as well as affordable stay at youth hostels. This was something in which India was lagging behind despite the increasing numbers of backpackers. “Here, you either have to book a pseudoeconomic hotel, paying roughly Rs. 2,000 per night, or stay in some dingy guest house for Rs. 300 to 400,” says Akhil Malik, one of the Zostel’s co-founders, and added “We wanted a remedy to this problem.” All the seven founders of Zostel were graduates from reputed institutions in India and could have very easily taken up a high paying job but their passion for this company led all of them to decline the commonly chosen path. They created a path for themselves and took up the challenge of solving the accommodation problem commonly faced by travellers in India. Hence, after coming back to India from their internships, they started Zostel to provide reliable and comfortable stay to the backpackers at economical prices.

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Cases in Strategic Management

But having a good idea is not all that entrepreneurs need to be successful they need to know how to implement the idea. This art was mastered by the Zostel co-founders. Initially when they started, it was a difficult task for them to fund their management education and at the same time invest money in their start-up. Family and friends came to their rescue during this time. Educational loans were taken and donation worth $100 was raised from Facebook. Dharamveer, one of the co-founders also invested $10,000 that received as a prize in a game, proving the investment that the founders had to make for their highly capital intensive idea to become successful. Zostel was purposely set up first in Jodhpur as one of the Zostel’s co-founder family (Mr. Chouhan’s) was already in the hospitality business there. The response could be judged from the fact that Jodhpur property having 25 beds broke even in the first month itself. There was no turning back after this. The team participated in over 14 business-plan competitions like Wharton India Economic Forum B-Plan contest and the ones run by the Richard Ivey School of Business, Canada which gave them a platform to test their ideas, fine tune them and also find potential investors who were willing to invest in the idea. The journey was not easy as it may sound. According to one co-founders, Mr. Akhil Malik, “One of the biggest issue was to change people’s mindset and promote the idea that even cheap rooms can meet the expectations and can be safe, clean and reliable.” Besides these there were other problems like investing more time and maintaining the speed of business. Moreover, there were operational and legal issues. It was difficult to manage labour and get the work done from them. Marketing was another area where the company needed to focus. The co-founders intelligently handled most of these with their first-hand knowledge and these hardships made Zostel grow bigger and better. During the evolution process, the co-founders made it a point to remember their basic aim of making travellers meet other travellers and providing them with a welcoming, well-maintained and comfortable stay.

TOURISM INDUSTRY AND SCOPE FOR ZOSTEL Zostel has initiated expansion in the backpackers’ accommodation sector, which was still developing in India. Due to their special focus on travellers, both foreign as well as domestic; the study of deeply linked tourism sector became priority to understand the market and scope for growth. According to the report published by the Ministry of Tourism, Government of India in 2014, it was found that the number of annual foreign tourist arrivals in India was 7.68 million and was growing yearly at 10.2%. Trends in the number of foreign tourists visiting India from 2000 to 2012 have been depicted in Exhibit 1.1. Domestic tourist visits within India to different states and union territories accounted for 1282 million travellers yearly and this number was growing at a rate of 11.9%. The industry marked an annual earning of INR 1.23 lakh crores and was expected to rise by 14.5% in the coming years. While in 2014, the total number of tourist arrivals in India was 7.68 million, the number had already reached 5.13 million in the period from January to June, 2015. Moreover, approximately one-third (33.7%) of total expenditure of a tourist during a trip was on

Backpacker’s Hostel

5

accommodation, i.e. on hostels. These statistics were a clear indication of the growth of industry and immense scope that lay ahead for Zostel. Zostel planned to target both international as well as domestic travellers. While the backpacking culture was prevalent among foreigners, it was still in a nascent stage in India. The market that Zostel was targeting was primarily the youth, i.e. people in the age group of 16 to 30, which basically included college students, sports groups, travel enthusiasts and travelling clubs. Zostel had set base in eight prominent tourist spots across India including Delhi, Jodhpur, Jaipur, Udaipur, Varanasi, Agra, Goa and Jaisalmer. As in April 2015, Zo Rooms owned 100 hotels across 10 cities, but the company planned to support over 1000 hotels across 50 cities by the end of 2015. While some believed that the backpacking industry was just a passing phase till the next recession or inflation strikes, Akhil Makil, the co-founder of Zostel, had a different opinion. He believed that the current generation was marked by a lot of uncertainty in terms of what each individual wanted in life. The current youth had worked hard to get good education and get a well-paying job in an MNC. However, as the propensity to spend grows, people start buying goods and products they wanted for long which they think would make them happy. But Akhil, through his experience with hundreds of backpackers worldwide, mentioned that sooner or later they are bound to realize that material happiness was what they were looking for. When that moment strikes, it will be the time when these corporates will pick up their tiny backpacks and move out to explore the adventure that is the world. This view was the major driver of Akhil’s confidence in the idea and the belief that it was not just a phase that will pass, but was bound to stay around for some time and grow in the near future.

EXPLOITING THE GAP IN THE MARKET According to a survey by a consulting firm PricewaterhouseCoopers in 2012, India’s hospitality service industry was short by 150,000 rooms. The market predicted a tremendous growth in “price-conscious domestic travellers”, thus indicating the fact that mid-market and budget segments had the maximum potential. It was seen in market studies that there was a massive shortage of short-terms rooms for under Rs. 2,000 a night in India. Surprisingly, rooms below Rs. 1,000 enjoyed an abnormally high occupancy of above 85%. Thus, there is existed a gap in budget options for leisure travellers. This was where Zostel jumped in. “We not only endeavor to ensure our hostels meet the basic international standards of affordability, security and cleanliness but they’re also welcoming, well maintained and comfortable for our guests to stay in,” Akhil Malik, Co-Founder, Zostel said. Thus, Zostel developed a completely non-existent domain of Backpacker’s Hostels, aiming to structure a largely unorganised market and become market-makers and market-leaders. Anchored on an asset-light business model, they planned to aggregate standalone budget hotels in travel hubs of the country and associate with a common name. The idea was to develop a brand name with backpackers’ associate and to provide a standardised set of amenities and comforts like any other conventional budget hotel chain.

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Cases in Strategic Management

Another move that was an immense hit among travellers was Zostel’s approach of providing not just an accommodation but a holistic experience in itself. The atmosphere was designed to lure the young, adventurous and the crazy. Its success was evident from the fact that Trip Advisor gave Zostel “5-star ratings” and placed it in the “Top four places to Stay” in all cities where Zostel had hostel. This allowed Zostel to create a niche for itself and bring a new dimension to the Indian tourism and hospitality scene.

COMPETITON FACED BY ZOSTEL Zostel was facing competition from various market players like OYO rooms, Treebo, Zip, Zen, StayZilla, etc. All these players were trying to capture the market by providing better amenities at the best rate possible. All these players had very huge potential to slash Zostel market share and profitability. OYO rooms was established in 2013 and was the biggest competitor of Zostel. The standard rooms provided by OYO rooms used to have all basic features like AC rooms, complimentary breakfast, 24X7 Wi-Fi facility and customer support services. OYO rooms had raised Series B funding of $100m and backed up by investors like Sequoia, Light speed venture partners and green oaks capital investment. Facebook and Twitter followers for OYO rooms were also increasing day by day.

COMPETITIVE ADVANTAGE The tourism and hospitality industry had a lot of individual and independent competitors making the market fragmented and discrete. Zostel was started so as to get the best of all these worlds. If we look at low-cost affordable accommodation, the main players prior to Zostel’s entry were Lodges and Guesthouses, 1 to 3 star hotels, Government YHAI (Youth Hostel Associations of India) hostels and standalone small hostels. Although Lodges, Guesthouses and YHAI hostels were very affordable, they lacked even the basic facilities and were located in obscure locations. Their poor hygiene and security were the main issues and travellers preferred avoiding them for the same reason. 1 to 3 star hotels were hygienic and had decent facilities but were relatively expensive for backpackers. For standalone hostels, affordability, hygiene and facilities were a positive but the lack of an established name robbed them of the trust of travellers in terms of security and stay. Zostel worked on establishing a brand across all major tourist hubs to reap the benefits of a cross-selling opportunity. Their rooms were affordable and at the same time hygienic and secure thus intruding into the market of Lodges and Government hostels. The creation of a youthful ambience and exciting engagement activities, basic amenities like Wi-Fi and a brand name made it possible for them to penetrate the backpackers market.

THE REVENUE MODEL Unlike most technology startups, Zostel required a great amount of ground work to get started up. The venture lay at the crossroads of hospitality and real estate. At the beginning they were

Backpacker’s Hostel

7

required to source appropriate properties, negotiate prices considering the price ceiling and operational economics and work out plans to expand to other parts of the country. Zostel followed a franchise model with all its properties rented out. It refurbished the property with air conditioned bunk-beds and all basic amenities such as Wi-Fi connectivity. In addition installation of board games, play station and chilled-out decor ensured it is a hotfavorite among young travellers. In some cases, the interiors were also done according to the location. In its expansion move abroad, the business model was tweaked to make it even less capital intensive. It allowed the local personnel to invest in properties and personally take care of marketing and branding. It then charged 15% commission on all bookings made through its app plus a monthly booking fee. The pricing for the rooms was market-penetration pricing with the sole aim of establishing a customer share in the Indian tourism industry. The tourism industry was price sensitive and Zostel kept this in mind ensuring value for money for all the residents.

INNOVATION AT ZOSTEL Right at the outset when it was conceived, Zostel faced the challenge of coming up with new properties. Obviously, this would prove to be a costly affair and for a ‘startup’, this was certainly not feasible. This was where they took their baby steps in the world of creativity, albeit small ones. Instead of coming up with their own properties, they consolidated a previously segregated market by taking over several hostels across India to bring them under one banner of Zostel. The process of acquiring continued with time and soon, Zostel was a chain of hostels unified under the name Zostel. They started operating these hostels at lower operating margins than before by giving better amenities. However, due to consolidation, the irregular demand for rooms at places averaged out slightly to compensate for the decreased operating margins. Conceptualising the Zostel Experience Once the plan for market entry and capitalisation was in place, the next thing on Zostel’s to-do list was market positioning. The problem here was if Zostel were to be just a chain of hostels scattered randomly in cities, it would be seen as just another hostel among many competing independent ones. The question that Zostel founders, Pawan Nanda and others, needed to creatively answer was how they would differentiate their product Zostel from the rest of the hostel market. Till then, the hostel accommodation market had been driven by consumers looking for extremely cheap places to stay. The Youth Hostel Authority of India (YHAI) provided just that. Zostel could not have hoped to compete with YHAI’s insanely low prices, not by any stretch of imagination. Therefore, just being cheap would not do the trick. Cue innovation! What Zostel did in order to solve this problem, is what drives the company even today. Instead of just being extremely cheap, Zostel decided to tap into the minds of these travellers and see where their demands could possibly be expanded.

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Cases in Strategic Management

Zostel discovered that most of the backpackers travelling would love to get a feel of the cities they stay in. Therefore, Zostel decided to get this feel to the backpackers inside the hostel itself! They themed the ambience on the city they were in, thus greatly enhancing the experience of these backpackers. Another discovery was of the fact that travellers love to interact with other travellers and Zostel gives travellers just that! With an array of common areas to hang out in the hostel and with periodically arranged recreational activities, Zostel gives the travellers ample opportunities to interact with the fellow travellers unlike any other hostel, so this is its innovative unique selling point. A fun yet cheap place to live where you can interact with fellow travellers in common areas and enjoy periodically arranged recreational activities, all fine-tuned to suit the place that you are visiting.

BUILDING BRAND ZOSTEL Having started Zostel and having a clear positioning in mind, the founders now faced a common problem that new startups face, i.e. building the brand. There were two primary innovative ways in which Zostel founders innovated creatively to build the brand Zostel. Brand Building and Cross Selling Every time you stay in Zostel, you don’t stay in Zostel Delhi or Zostel Mumbai or Zostel Shimla. The founders firmly believed that you stay in Zostel. When you were living in a Zostel in Shimla, you were being sold Zostel Delhi or Zostel Mumbai through good service and a great stay. This worked perfectly for the company because most of the people who stayed in these hostels were backpackers who were likely to travel other places as well with an active chapter of Zostel. Brand In order to maximise the advantage of being a hostel chain, Zostel markets branded Zostel much more than individual hostels coming under their banner. This combined with the above mentioned idea of cross selling Zostel’s hostels was an amazing creative approach towards marketing and brand building coming from the founders. The founders quickly realised that their market audience was backpackers and a vast majority of backpackers were very young travelers (age between 20 and 28). In order to tap into this market as much as they could they started building the image of Zostel as being by the youth, for the youth and of the youth. The following are some extremely interesting ways how they did this. 1. Youthful Portrayal of the Company: A major part of satisfying the above was to portray that the company as being youthful. And that they did! If you visit the website of the company, you will find a plethora of youthful bright colours, vibrant text designs complete with a mascot, all factors that greatly benefit the company’s portrayal as a youthful brand. The people almost felt as if Zostel was just like them and this was exactly what the founders had wanted them to feel. 2. Partnerships: All the marketing oriented partnerships of the company were with youthcentric organisations and college festivals. All of this, apart from fetching direct youth visibility for the company, also helped in its youthful portrayal. It had also partnered

Backpacker’s Hostel

9

with brands like MTV and Red Bull, both seen as youthful brands, thus leveraging their brand image to build that of Zostel. 3. Zostel Internships: Yet another creative marketing exercise that the company undertook was the concept of Zostel internships. These were 50 days’ all expenses paid trips for young adults across India with stipend of Rs. 50,000, disguised under the name of internships. The company banked on the people doing the internship and talking to their peers, thus organically marketing Zostel. Through the program, the company again portrayed itself as youthful and at the same time garnering direct and indirect publicity for itself. These are just some of the several creative innovation techniques employed by Zostel. The company and its core managers remained committed to unconventional creative ways to do what needed to be done.

EXPANSION MODEL Starting as a self-funded company, Zostel picked up its first round of investment worth INR 5 crores from a Malaysia-based investor, Presha Paragash in 2014. In May 2015, they picked up their second round of undisclosed funding led by hedge fund Tiger Global in participation with Orios Venture Partners. Market sources peg it at somewhere around $15 million (INR 96 crore). The aim was to achieve a leadership position in this naive market and majority of the use of proceeds was going to be in building a strong brand, marketing, bolstering technology and ground operations. Zostel had also been constantly expanding across India. Having started in three cities across Rajasthan – Jodhpur, Jaipur and Udaipur – Zostel had now expanded into Delhi, Varanasi, Agra and Goa. The expansion was done strategically to capture all major tourist hubs as even now, 65% of Zostels’ occupancy comes from foreign travellers. Also, most Zostel hotels were located within a kilometer’s distance from the city. “We expand in tourist circuits. Like, say, a traveller who goes to Delhi and Jaipur will also go to Udaipur. So these three areas will be targeted”, said the founders of Zostel. The company had also gone international with the launch of its first overseas hostel in Dalat, Vietnam. “We are planning to launch more international properties, including in Nepal and Sri Lanka. By the end of this year, we will launch three unique properties in each location, taking the total number of hostels to 40 across national and international destinations,” said Akhil Malik.

CURRENT CHALLENGES FOR ZOSTEL One of the major problems that Zostel is facing is changing people’s perception about cheap accommodation. In India, the reputation of a cheap accommodation is not good and they are considered unsafe, unreliable and not so comfortable. Zostel needs to break this misconception in order to gain popularity by using popular marketing strategies. Another problem that is hindering Zostel’s growth is proper management of the operations. According to Akhil Malik, “It becomes difficult to interact with the people who do not

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Cases in Strategic Management

understand you because they are labourers.” The local rules and regulations also pose a challenge to the expansion in various cities and countries. Property scouting is another area where Zostel is facing problems. They need to find a right property at a right location and convert it to Zostel by providing it all the necessary facilities that can make a person’s stay comfortable. Like any other industry, Zostel is also facing competition from various competitors as discussed earlier. In order to gain an edge over these competitors by providing competitive prices and facilities and at the same time to remain profitable, Zostel needs to come up with more innovative ideas and should strengthen their business.

WAY FORWARD Going forward, Zostel need more capital for their expansion plans. They are trying to expand their operations in domestic as well as in international market. They are facing challenges from all directions but they are determined to make an impact on the tourism industry by providing all facilities that can meet the international standards of security and hygiene requirements set by the industry western counterparts. Currently, Zostel is facing fierce competition from other market players like OYO rooms, Treebo, Zip, Zen, StayZilla, etc. But now the company is looking for a sustainable plan that can help Zostel to increase its market share.

QUESTIONS FOR DISCUSSION 1. 2. 3. 4.

What should the CEO of Zostel do to sustain the advantage gained by Zostel? Should Zostel enter into joint venture or acquisition? Why has Zostel been successful and what are the aspects for future success? Analyze the competitive scenario of Zostel.

EXHIBIT Exhibit 1.1 Indian Tourism Industry Statistics Indian Tourism Industry Statistics Number of Foreign Tourist Arrivals in India

7.68 Million

Annual Growth Rate

10.20%

Number of Domestic Tourist Visits to all States/UTs

1282 Million

Annual Growth Rate

11.90%

Foreign Exchange Earnings from Tourism

INR 123,320 crore

Annual Growth Rate

14.50%

(Source: India Tourism Statistics at a Glance 2014, Ministry of Tourism, Govt. of India)

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REFERENCES 1. http://archivetravel.financialexpress.com/201110/edge01.shtml (accessed 30 June 2015). 2. http://articles.economictimes.indiatimes.com/2015-07-20/news/64638772_1_orios-venture-partners-tiger-global-hotels (accessed 23 September 2015). 3. http://qz.com/search/Zostel (accessed 20 August 2015). 4. http://www.businesszone.co.uk/around-the-world-in-five-startups-paavan-nanda-zostel-india (accessed 30 February 2014). 5. http://www.ghumakkar.com/ (accessed 22 April 2015). 6. India Tourism Statistics at a Glance 2014, Ministry of Tourism, Govt. of India http://tourism.nic.in/writereaddata/CMSPagePicture/file/marketresearch/statisticalsurveys/India%20Tourism%20Statistics%20 at%20a%20Glance%202014.pdf (accessed 28 September 2014).

Theme II General Environment Analysis

Case 2. Passionate Zomans Case 3. Dr. Reddy’s Laboratories: Entry in German Market

Passionate Zomans

Case Context Internet start-up Zomato is one of India’s global success stories. Zomato is a name which provides a solution for human’s one of the very basic need called ‘food’. It helps food lovers in India to find appropriate food restaurants as per choice just by using smart phone. Although Zomato has expanded its operations in more than 20 countries yet the main cities in India are New Delhi, Mumbai, Bengaluru and Pune. Zomato has become a favorite name among the youngsters. The customisation of services through taste and language is one of the specialties of Zomatians. The young founder ‘Deepinder Goyal’ has faced a number of challenges from inception to expansion in food and beverage industry. Its vision is to expand to more than 50 countries. “Keeping our users happy by giving them a beautiful, easy-to-use product and maintaining a strong content platform as we grow is what’s most important to us at this point in time. We’re aiming to become the go-to restaurant discovery service across the globe, and we’re working towards doing just that”, says Deepinder Goyal, founder of Zomato. INTRODUCTION Zomato was an application, which provided users complete information about the restaurants and food joints for over 1.4 million restaurants, in around 10,000 cities across 23 countries. Zomato was a platform not only for food lovers, but also for food servers and restaurant service providers. Service providers got a canvas to post and update their new cuisines and specialties of the season, while foodies got a chance to explore new food, places and new ambience to experiment with a review and feedback. In the digital era, people could easily get access to Zomato website as well as mobile apps to get the relevant choices according to their tastes. To evolve as a friendly neighborhood restaurant guide, Zomato featured restaurant information which included scanned menus and photos, review, blogs about particular restaurants. The restaurant location, menus and other related information about food had been collected by Zomato team across the country and globe. Furthermore, they had expanded their services by providing online orders, cashless payments, table reservations in restaurants. The Zomatian way of providing the right information to the right people was certainly going to change the future of restaurant businesses. Competition among the players was helpful to provide the best quality food and quality services to the customers so that they could get the value for their money.

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HISTORY OF ZOMATO The ideas do not need your permissions to click. It may be a class room situation where you feel hungry or bored by technical sessions. The same distractions became the starting point for the Zomato journey. The inception of this idea took place in the mind of Deepinder Goyal, a mathematic student of M. Tech. in 2006 and this student gave birth to a novel idea to manage hunger in a very creative way by just clicking your phone. Goyal worked on the idea of connecting the hungry people with the food of their choice at their door steps. He had observed that people spent a lot of time in hunting a good restaurant these days. Working on his idea further, he dreamt of designing a website to get the information about the restaurant food, taste choices and its ambience. Deepinder Goyal was soon joined by his friend Pankaj Chaddah. While sitting in a cafeteria, they observed queues of people waiting just to see the menu cards. The process of skimming through restaurant menus during lunch hour was a painstaking one. They had to queue up in the cafeteria every day to go through a stack of restaurant menus to order food. They couldn’t take the menus to their desk since people ended up losing them. So, to save time and reduce the trouble of food lovers, they scanned these menus and uploaded the same online over the office intranet for their colleagues to use. The acceptance of idea and ease of usage made this idea viral and a new venture called ‘Zomato’ came into existence. Also, two of his juniors joined the team and collected some more menus and uploaded the same information over the website. Within few months, around 2000 menu cards were updated and the website www.foodiebay.com became popular among the food lovers. It was an easy way to check the report card of a restaurant, validated by their friends. Deepinder Goyal wanted to test the water and wanted to run his own venture, but he was not ready at that time. After college, he joined Bain & Co in Delhi and met his friend Pankaj Chaddah. Although they had studied at IIT Delhi, yet they met at Bain & Co. Likeminded people came together, explored the market and decided to give it a try. Deepinder Goyal resigned from his job on the very same day, when his wife, Ph.D. in Mathematics, got a job offer from Delhi University. The preface was already started building by starting the website as Foodiebay.com, but the real changes happened after Pankaj Chaddah also left the job and joined Deepinder to test the market. They informed their parents about their decision only after they quit, so that there is no scope for any second thought. After quitting the jobs, they started to focus on other big cities in India and started their offices by the name of Zomato. The growth of Zomato was well noticed by venture capitalist like Sanjeev Bikhchandani, the founder of Naukri.com, Shiksha.com and Jeevansathi.com. He liked the idea and services provided by Zomato and invested around $1 million in seed funding through his company Info Edge Ltd and repeatedly invested four times. The accumulated amount reached to $25.4 million and increased the share of Info Edge by 50.1% in Zomato, which made him majority stakeholder. In next few months they got ready with the website information and made the Zomato app available in Google Android operating system. The idea to rebrand Foodiebay as Zomato was not just to restrict food related information only, but also Foodiebay contains ebay at the end, and they do not want to get into any kind of confusion at customer front. Now Zomato app was

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successfully running on all the platforms from Android to windows to iOS. The app in 2015 had contact information of 180,500 restaurants in 36 cities. It also crossed the country boundaries and reached to 11 countries like Dubai, UAE, Sri Lanka, Qatar, the United Kingdom, the Philippines, South Africa, Auckland and Wellington and Hamilton in New Zealand, Brazil, Turkey and Indonesia. They further planned to make their presence in 22 countries in next two years. However the company was not making any money from these apps, but it facilitated customers to use the services on more frequent basis. As mentioned by Deepinder Goyal (CEO of Zomato), “We are looking at it as a marketing tool, but three years from now we will figure out a way to monetise it,” Zomato was generating good revenue at a significant rate. Zomato earned revenue of Rs 11.5 crore in 2013 as compared to Rs 2 crore in the last year. The regular information updation about foods and restaurants kept customers satisfactory. Also, it gave competitive advantage to Zomato. Zomato was able to raise money through a number of funding rounds and was able to access 23 countries and more than 3,00,000 restaurants information. The fund raised was quite helpful to expand the Zomato’s scale of operations.

ZOMATO’S BUSINESS MODEL Until September 2014, the business model was primarily dependent on local advertising on websites. With the strong focus on mobile, the company decided to build Zomato for business app, which is gaining traction steadily. Zomato has since started focusing on evolving the product offering and has expanded the product portfolio to offer six products – the Zomato restaurant finder app (search and discovery), Zomato for Business (app for restaurant managers), Zomato Order (for Online Ordering), Zomato Book (table reservations), Zomato Cashless (in app payments) and Zomato Base (POS). Zomato was focused on building a seamlessly integrated dining experience for consumers. There was a huge emphasis on ramping up operations in 2015 as well as going deeper into the restaurant vertical as well as keeping an eye over the expansion to new markets. The business model and the overall economics of the business had worked very well. Zomato’s business model worked on different features like Hyper-local advertising, Zomato for Business, Cashless payments, Online Ordering, Product innovation, etc. Zomato was not handling the logistics of the actual delivery of food but was acting as facilitator between the consumer and the restaurants offering home delivery. Zomato charged restaurants a commission and this too had added a new stream of income.

Business Strategy According to Mr. Goyal, Zomato was a simple 3-click ordering process with a social interaction (rather than just social tools) to provide the platform (digitisation) and access to thousands of small restaurants who would not otherwise get recognised. The key strength of Zomato was the coverage and in-depth knowledge of food with different reviews. The continuous updating

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of reviews and increasing number of registered restaurants in comparison to its competitors gave an edge over others. The co-founder of Zomato also mentioned the same, “Our core strength is fresh, exhaustive restaurant information, and we have a team in every market focusing on this core to make sure we are relevant and reliable for users. This includes re-visiting restaurants to ensure that our data is fresh and accurate. In that sense, it does pose a challenge while scaling, and finding the right people for the job isn’t easy.” —Pankaj Chaddah (co-founder, Zomato) Zomato’s strategy was relatively simple. The focus had always been on creating a product that people will love because it adds value to their lives; one that looks good, and works even better. Zomato did not make a mistake to be complacent about its product or services. It has always searched for better and thrived hard to provide the most relevant and crisp information to its customers. It was one of the core competences of Zomato. The important key success factors of Zomato are its market strategy and branding. Company got almost 50% of its business from mobile apps due to relevance, and an awesome user experience. The social media platforms like Facebook, Twitter and Pinterest also enhanced the presence of Zomato for food lovers. In terms of expansion into new markets/locations, Zomato entered markets if it saw a product-market fit and had the bandwidth to execute very quickly. For entering in a new market, they tried to acquire the existing strong players in the market to leverage their brand and local food knowledge and preferences. Expansion in Europe had been one of Zomato’s key focus areas. The most significant was its January takeover of Seattle’s Urbanspoon in a $52 million, all-cash deal. This gave it an entry into the United States, Canada and Australia – pitting it directly against the popular Yelp.com. Zomato also bought out six other restaurant search companies, allowing it to enter New Zealand (Menumania), Czech Republic (Lunchtime) Slovakia (Obedovat), Poland (Gastronauci), Italy (Cibando) and Turkey (Mekanist). Urbanspoon was a market leader in Australia and Canada and a significant player in the United States. The acquisition of Urbanspoon was the perfect way to enter all three markets and successful product migration – the combined product – offering the best of both Urbanspoon and Zomato on a common platform. Zomato had also been launched in Toronto and Lebanon in 2014. Zomato was penetrating quickly and got access in 23 cities within Czech Republic, whereas global competitor Yelp was only present in Prague.

CREATIVITY AND INNOVATION The theme of Zomato was always “For the Love for Food”, and the belief was that the best way to build relationships is by talking to the clients passionately about your own brand. Zomato felt this could be best done by its own staff. They were looking to build good and healthy relationships with media and changing PR agencies. The marketing efforts need to be done internally for building friendly approach. Another advantage of this approach was that it was a cheaper alternative. But as the marketing was in-house, a need was felt for the media opinion too. In order to counter that Zomato built a social media community Zomato approach was to build a social community around food.

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Community Engagement They went out to bloggers every week for their opinions which acted as a valuable feedback for improving their product in addition to building relations with the media. This feature can be seen currently on the Zomato site. No other competitor offers such a comprehensive database regarding restaurants and food. Zomato achieves this by taking pictures and uploading the menus in their site and apps. The unique feature at Zomato was that they did not trust others when it comes to update information.

The Perfect Timing Zomato was in full momentum in just six months and around 5 lakh users were visiting their websites every month. Now it was high time to formalise this channel and make an effective presence and brand visibility through various campaigns. Feedback had been integrated and they were confident of their product. The atmosphere was that of confidence and that eagerness to go onto next level. But they did not go to the next level. Zomato waited till September instead of launching the campaigns in July to capture more number of people. Usually people go on vacations during this time. The timing was crucial. The attention to small details was a big key for Zomato’s success.

Online Campaign Behavioural targeting was the method adopted by Zomato to spread its message out. The primary focus was on food bloggers and online food communities as these were the ones who would be most benefitted from this product and the ones who were most likely to use it. They tried to capture the customers who exhibit a consistent behaviour of using online services and food websites. The usage of food websites was the indicator of their interest while the audience surfing online services or E-commerce was the indicator of their affordability.

Dilemma Over Message and the Creative Answers A lot of debate was done over the message Zomato wanted to convey in their advertisements. Advertisements rich in content were their USP but they wanted to deliver a simple message, which was in sync with how they started. Until the deadline there were many messages in place but they decided to go back to the basics. Their social media strategy did not focus on the product itself. They instead focused on showing their humorous side. They wanted to show a friendly tone but there was a hidden strategy behind it. People like to share humorous content. It was an effective way to advertise. The main purpose of branding was relevance. Zomato achieved relevance as the people linked Zomato with food and restaurant. This is a classic case of branding without too much focus on product details.

The Friendly Approach Zomato took a very different approach when it came to customer interaction. It enjoyed the friendly conversation over social networking sites. This strategy worked very well for them and gave them originality. They worked on the philosophy of “be yourself, be original”. A very important aspect was to be there for your customers when they needed you just like a friend.

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Needless to say, Zomato had always been very quick to respond to user feedback and queries and this greatly helped them in maintaining a friendly approach. Zomato not only provided information about food and location, but also the details regarding Wi-Fi, airconditioning, live music, etc. These filters with attention to minute details made Zomato what it is today. Zomato, a small startup reached a status of being amongst the top 25 and most promising websites in country in just a span of 2 years. The telephony services and the internet expansion added to its advantage in making it a success. The rising need and getting convenient access to details of eateries gave birth to this business. It was totally a nontraditional way of innovative thinking which led to success of Zomato from Zero.

Zomato Added Advantage Zomato was targeted to provide restaurant owners a platform to market themselves online. Many small restaurants could not maintain their website, but now could have an easy customer access through online advertising. Zomato, thus acted as a medium for such restaurants to grow. Also, Zomato provided them correct information about the product pricing and other related information.

SOURCE OF REVENUE FOR ZOMATO Zomato made money from the following three ways: 1. Advertising, 2. Event tickets, and 3. Sale and business intelligence and data analysis. Advertising was the major contributor of Zomato’s business revenue. Zomato earned about 80% of revenue from restaurant advertisements. It was working with an idea to provide information about the food and places on their websites. If a food lover clicked on Zomato app or website, they would certainly like to click on the eye catching title like “Trending restaurants this week”. This was one of the creative ways of advertising, where consumer was not forced to watch the ads or forced to read but they would click on the link to seek information. Certainly this reverse way was more effective than the traditional styles of advertising. Event ticket sales provided a plethora of events happening around at different restaurants made available through the site, thus provided an interface and worked as an e-ticketing partner. The revenue of Zomato was a fixed percentage of ticket amounts as per the agreement. This source added to around 15% of the total revenue. Business intelligence and data analysis tools were widely used by Zomato content experts to provide the relevant information to its clients. Zomato worked as consultant to the restaurant owners to understand the customers’ preferences, pattern of choices, demographics and locations. Furthermore, Zomato tried to understand the business-to-business environment by observing the local markets in terms of their advertisement, hoarding, print media and radio advertising. If they were willing to engage with any platform (including online), Zomato targeted those restaurants and showed them the value proposition in their model. They were able to

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make huge number of links from such innovative thinking and earned revenues by linking with these restaurants. Being a local search platform, it had the technical skills to change the reviews and ratings of particular restaurant but it was very clear to Zomato’s creators that they will never compromise on their content for revenue. Overall revenues generated Rs 11.37 crores in FY 2013-14 as compare to Rs 2.04 crores in FY 2012-13. Advertisement revenues saw a huge growth of more than 500% from Rs 1.59 crore in FY 2012-13 to Rs 10.88 crore in FY 2013-14. Event ticketing, a business that Zomato entered in late 2011, showed a decent growth pattern. The firm saw a growth of 22% to Rs 33 lakh in FY 2013-14 from Rs 27.4 lakh in FY 2012-13. However, restaurant booking saw a minor decline in income from Rs 17 lakh to Rs 15 lakh in FY 2013-14. It was quite evident that advertisement revenue was the major contributor of revenues with a contribution as high as 96%. The revenue generated from advertisement was 78% in FY 2012-13. Growth in income from advertisements on site saw a huge increase as compared to event ticketing and restaurant booking in FY 2013-14 and it completely outshone them. In event ticketing, there was a considerable growth but Zomato still lagged behind its major competitors like bookmyshow and kyazoonga.

COMPETITIVE ADVANTAGE After 2011, the e-commerce sentiments in India started to change and winds started to favor the rise of Indian companies like Flipkart, Myntra, Cleartrip, RedBus, etc. These companies created a buzz by implementing the right product and furthermore offering better service. Appreciation from Indians came wholeheartedly and spread over word-of-mouth and primarily over social networking sites. The websites of these companies were not as good as those of Pinterest, Pandora, Rdio, Kickstarter, etc. No matter how the Indian counterparts represented themselves, they were able to complement to their needs and the desires of the Indian people and were able to sustain themselves in a variety of ways. Zomato was a different story altogether. It created a space for itself in the Indian diaspora. Although some of the Indian company websites lacked in their design, but Zomato was always the best. It was able to draw people’s interest and offer its product. It gives the kind of experience of any sites used in the West.

Simplicity Unlike Snapdeal, Tripadvisor or Justdial; even before Zomato came into being, Burrp, another player in same industry, pitched into the same market but faded away just because they did not have a product to sustain themselves in the long run. Zomato sailed through by rightly targeting food and restaurant segment, which was unexplored earlier. Any other company would have stopped functioning. But there were many other things apart from the regular restaurant listings that Zomato had to offer. The website with its colour combination, font and design was already a hit. Their app was equally good. The leader board, featured reviews and “Write for a bite” are some of the features that attracted the users and made them to stay connected.

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Importance to the User Zomato offered customers, a solution to have access to all the restaurants through a database, types of food menu, location of the eateries and most importantly their feedback and the reviews. Also “on the go mobile apps” which provided convenience, easy interface, presence over social media like Google+, Facebook and availability on various platforms contributed to the increasing rate of application and hence was responsible for generating revenue. The operating revenue of the Zomato was just zero in FY 2011-12. The trend changed in FY 2013-14 where the revenue was Rs 3 crores per month and a change of 458% was seen out of which India alone contributed 65% of the total operating revenue. These features offered four levels of user and allotted point through a system. Nothing was hidden and hence simplicity to understand helped the users to familiarise with the application at one go. With the “Write a bite” contest, it propelled good review writers to fight for a review competition at the end of a week and rewarded the best reviewer. These gave the users opportunity not only to use their listings, but also showcase their writing skills. A sense of importance for each user or a reviewer showed that the company cared for their reviews and they were also featured at the site. The efforts and time devoted in writing reviews did not go in vain, when someone read it.

The Restaurant Finder Finally the Restaurant Finder was the most important feature Zomato had to offer to its customer base. It was available both on website and as an app, it boomed as soon it came. People found it very useful implementing the module better as an app rather than on website. The different segments of browsing, finding nearby restaurants, brilliant usage of filters actually helped users to filter out the restaurant of their choice aided by the reviews and other details in a well-organised way. They improved the eating out experience in a true sense by providing menus and photos of restaurants.

EXPENDITURE MODEL AT THE ZOMATO It is well known that a man has three basic needs – food, clothing and home. IIT Delhi’s student Deepinder Goyal was smart enough to catch an idea as his business plan, which seemingly appeared to be a very small and had negligible segment. After second world war in the international font people increasingly became affluent, and an affluent society had emerged which looked for food as a part of leisure, socialising, sharing pleasure of talking and being with family and friends while eating, and not just food alone as the basic necessity. Many of the people in modern society didn’t care to pay a little extra for good ambience, location, standard boost, gentry around them, tasty food or just its presentation! Deepinder Goyal was able to notice this mindset of people.

Zomato Operations Today Deepinder Goyal’s company Zomato clicks photographs of the restaurants, collects their menus and presents on the internet. They also present experience of other customers

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on websites as well as on apps on all media and OS including iOS, Android, Windows Phone and BlackBerry. This is supported with a lot of data analysis for their clients, e.g., what kind of society exists, where, what is their taste, requirements, etc. The main source of revenue of Zomoto is advertising, by placing advertisements of restaurants on their websites and app. As is known, 80% of their revenue comes from direct advertising of restaurants on their websites and apps, and about 5% from ticketing. Balance comes from various advisory sources.

Company Financials and Growth Pattern A very important and genius approach adopted by the company was that their cash graph was almost horizontal, only slightly rising to sustain interest of their investors or shareholders. This was against the fact that the company started only with an idea and zero cash, and had absorbed five major investments which were also proportionately increasing. Still the company was showing losses. The company was very clever to handle its finances. It can be seen their growth has been almost vertical before 2008 and also thereafter. They went on investing all their earnings for expansion, be it in India or abroad. Thus, they were avoiding any surplus cash and profits. This meant low taxes, and low wastage. The credit goes to their idea of the food sector which was really an ocean. The company spent all its earnings into expansion. Their major investor Naukri.com was very well aware of the potential in this line, and the potential of the company to grab these opportunities. The company was continuously growing at a phenomenal rate. Not only they had absorbed all investments but had taken only that much money from Info Edge which they could invest in that financial year. In 2011 when they were a small company, after taking $2.5 billion from investors, they dared to buy New Zealand’s Menu-Mania for a whooping sum of nearly $2 billion. This may not look appreciable amount, but it showed their determination to take over the world. At a time when their own worth was not much, this was certainly a very daring, risk taking and well calculated business disrupting act. They had not made many big investments like this at many places, but had been continuously expanding city by city. Even after having a foothold in Chile recently, the company announced to spend another $2 billion on expansion that quarter of the year 2014 itself. The actual expenses were very low. They spent only 3% as internet related expenses, but about 35% was spent on manpower used for business analysis, expansion and to maintain one of the largest customer data. They invested another 35% on advertising and promotion. A substantial part of earnings was being passed on to the shareholders at a rate of Rs 2.5 per share in FY 2013-14, in addition to an approved dividend of Rs 1.5. This kept their investors happy on the stock exchange both at NSC as well as Bombay Stock Exchange. As is evident from their 2013 balance sheet and partial 2014 projections, the company had been earning more revenue year after year. But they have been spending at a greater rate – resulting in losses in balance. After the company got an investment of Rs 226 crores from their prime investors,

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the company was losing its financial autonomy, and control was to go in the hands of principal investors, who was having a share from 51% to 57%. So the company had no option but to go for public shares in a very big way very soon. This was to happen in 2015 or even in last quarter of 2014.

EXTERNAL FACTORS An Indian Company Started by an IITian Since most of the food hunters found online were educated people mainly engineering students, so at that time it was a matter of pride for an Indian company to give them advice. Moreover the company people understood very well the need of their site visitors. So there was 100% matching. This innovative method of choosing a restaurant, a bar or a club was also very safe and clean. Zomato was providing advice to save everybody’s time and money. The grading they provided from 1 to 5 was already tested and used in Bombay by the BMC for almost 50 years now, and restaurants charge according to their grades. So it gave an economic understanding of the restaurant, bar or club. Furthermore, Zomato provided a platform for social interaction; firstly by giving them an idea what kind of gentry and what kind of an ambience will be there at the restaurant, bar or club. They went further in to provide ‘FREE KI ADVISE’ from other fellows. They went way ahead when they offered a platform from where you could advise others and were virtually present on the Zomato site without paying anything. Pankaj Chaddah, co-founder and COO of Zomato once said, “People rely heavily on regular recommendations and feedbacks from friends, family and relatives while looking for eateries. Our main motive was to cater this business through social networking. Also our main motive was to create a product or service that would encompass restaurant search, discovery, and be one that our users would enjoy using. Making sure that the users are engaged and maintaining a content platform are important aspects that need to be addressed in future times.” Searching for restaurants was now quicker than ever. Most of the revenue in financial year 2012–13 entirely from online advertising and 2013–14, the company claimed of making higher profits. As they planned to enter Scotland, Zomato would surely benefit from Scotland’s vibrant society, industry sectors, its talent pool and business-friendly environment. Zomato exploited all popular technologies such as presence on internet and apps for different mobiles. This was certainly a very timely and smart move. Their clients could be always in touch with Zomato in this way. In the bottom of the screen, these apps also flashed restaurant advertisements to motivate the customers further.

CHALLENGES FOR FUTURE It’s a high time for Zomato to go public and launch its IPO. It is in its investment phase and the funds will help Zomato to expand itself even further. Currently ZOMATO is available in only English, so it creates a language barrier and people who are not very comfortable with English cannot use Zomato even if they want. They have already planned to launch a Thai, a

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Portuguese and Spanish version of the site in the coming future. At present, ZOMATO may be calculating and preparing itself for the launch of public shares and proposing new projects side by side to make the offer more lucrative. Currently, Zomato is operational in 11 countries and it should expand its reach to other countries and earn a global reputation. Zomato is already planning to expand to 18 to 20 countries in the coming few years. Zomato is also thinking to acquire few more startups as this could help them greatly in the coming future. One great addition to the millions of services offered to Zomato would be the option of advance booking of seats at various restaurants from the website itself. Zomato was pondering to start offering food coupons or discount coupons for its customers going for online booking and reservations; this would attract a large audience. Zomato could also start its own service centers because a large chunk of people cannot use internet properly and are not very active on it. So if customers can directly call on the service centers and ask about restaurants types they want to go to or any other related queries then this could lead to an even better customer satisfaction. Zomato also wanted to expand its reach to rural areas as India is a country with huge rural areas and people have no internet access so it is an untapped market for the company to explore. Restaurants’ phone numbers on the Zomato website are very frequently not working and thus the firm was trying to rectify that issue and keep a record of all the changes in the restaurants details. So far the policy of the company had been very consistent, simply expanding the same old work and putting them on website. However the company would sooner require going for path break-through innovation, as they meet competition and business threats. With their presence on several continents now, most probably they would aspire to become a major player of internet based services. Anyway their present business is far away from being saturated so soon. A threat came their way when they started their operation in Singapore and found that restaurants were not willing to disclose their menus on the internet, or even being photographed. They have been having a different culture and would not like to accept Zomato offers even of free advertisement launching. This non-cooperation resulted in sudden losses to the company and they were forced to windup their operations in Singapore. It all depends on the kind of response the company gets on the stock exchange for public investment that the company will have to think of using the money. So far their expansion has been satisfactory, and the company never collected enough to worry about investing in portfolios. The major investor Info Edge would not like to meddle with many takeovers by Zomato for two reasons: it would be cannibalism or an act of eating itself. Moreover, the policy of Info Edge is to let various companies grow around them like Shiksha.com, Jeevansathi.com, and Naukri.com. Thus they are primarily venture capitalists. Zomato has understood the importance of skilled manpower. They have recently launched a scheme for prospective employees to come and prove themselves within a week with all expenses paid. At present Zomato may be calculating and preparing itself for the launch of public shares and proposing new projects side by side to make the offer more lucrative. Also, a time will come for experimentation with this sort of money. We may see some forced diversification of the business taking place in very near future!!

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QUESTIONS FOR DISCUSSION 1. Does all the business models of Zomato make sense? Conduct a detailed customer expectation analysis. 2. What is your assessment of the changing industry and its impact on company? 3. How effective has the firm been in gaining competitive advantage in the industry?

REFERENCES 1. 2. 3. 4. 5. 6.

http://startupadda.in/ (accessed 22 February 2015). http://techcrunch.com/2014/08/21/zomato-cee/ (accessed 28 August 2014). http://trpc.biz/ (accessed 28 February 2016). http://yourstory.com/2014/11/zomato-branding-logo/ (accessed 30 July 2014). http://www.bgconfidential.ae/little-black-book/sales-manager-needed/ (accessed 30 April 2015). https://www.zomato.com/ (accessed 23 August 2014).

Dr. Reddy’s Laboratories: Entry in German Market Case Context Standing near the window of his cabin, Mr Sethi was pondering on the decision he took as the CEO of Dr Reddy Laboratory (DRL) to acquire Betapharm in 2006. On the morning of 15 February 2016, it was calm and serene outside, but things were different on this side of the glass. The company had acquired a giant as Betapharm, the fourth-largest generic drug manufacturer in Germany. But things have been gloomy since then. Losses have increased over the years and the situation is not getting any better. As he gets ready to face the Board in the General Meeting due next week, he has some task in his hand. The board is unanimous on the decision to go for further expansion of the $2.3 billion company. However, there is still an underlying fear that things might not turn right, and what if there’s another acquisition like Betapharm. INTRODUCTION Based out of Hyderabad, India, Dr Reddy’s was founded in 1984 by Anjani Reddy, a scientist and entrepreneur. The company manufactured and promoted an extensive range of pharmaceuticals in India and abroad for Dr. Reddy’s product mix in FY2015 (Exhibit 3.1). In 2015, the company had Net Revenue of US$ 2.38 billion and Net income of US$ 356 million as Revenues and Net Profit (Exhibits 3.2(a) and 3.2(b)). Norilet was the company’s first major brand in India after which a series of successes followed, starting with Omez, the branded omeprazole. By 1987, DRL was the only Indian company exporting active elements for pharmaceuticals to European nations. It was only at the end of year that the company got into the business of manufacturing pharmaceutical products rather than just an exporter of active elements. As per a study by Trust Research Advisory (2015), a brand analytics company, Dr Reddy’s ranked among 1200 of India’s most trusted brands.

GLOBAL PHARMACEUTICAL MARKET The pharmaceutical business sector had encountered some significant challenges in BRIC countries. The emerging markets were rapidly getting up to speed to those of developed nations like North America, Europe and Japan. The North American industry expanded by 12% while Latin America’s incomes expanded by 17% in 2014. Emerging markets comprised 23% of the industries fairly estimated worth in 2014, in contrast with just 13% in 2006. Countries such as China were quickly transforming the pharmaceutical sector. China’s five-year arrangement

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from 2011 to 2015 was expected to redesign the health care framework and expansion protection scope (see Exhibit 3.3 for global revenue of pharmaceutical industry). Government jolt, expanded health mindfulness and enhanced R&D abilities had driven China’s pharmaceutical industry development. An inexorably huge and maturing population had further extended the healthcare framework. The nation produced $109.3 billion as pharmaceutical industry income in 2014. The pharmaceutical industry in countries such as China had numerous open doors that were helpful for its development (Exhibit 3.4). In 2013, the North American pharmaceutical business sector created 322.5 billion Euros in income while Asia, Africa and Australia, aggregately, represented 246.8 billion Euros altogether. Dr. Reddy’s Global presence was also evident to share some portion of this revenue (Exhibits 3.5 and 3.1). In 2015, the worldwide pharmaceutical industry was worth right around 1.1 trillion US dollars in business sector esteem.

INDIAN PHARMACEUTICAL MARKET As far as volume was concerned, the Indian pharmaceuticals business sector was the third biggest. And as for worth, it stood thirteenth all-inclusive, according to a report by Equity Master. Out of aggregate business sector, branded generics constituted 70 to 80% of the overall industry. India was the biggest supplier of nonexclusive medications comprehensively with the Indian generics representing 20% of worldwide fares regarding volume. Recently, union had turned into a critical normal for the Indian pharmaceutical business sector as the industry was exceptionally fragmented. India appreciated an essential position in the worldwide pharmaceuticals part. The nation likewise had a huge pool of researchers and architects who could possibly control the industry ahead to a considerably more elevated amount. The UN-sponsored Medicines Patent Pool had marked six sub-licenses with Aurobindo, Cipla, Desano, Emcure, Hetero Labs and Laurus Labs, permitting them to make non-specific against AIDS drug Tenofovir Alafenamide (TAF) for 112 creating nations.

GROWING MARKET IN INDIA The Indian pharmaceutical industry was estimated to grow at 20% compound annual growth rate (CAGR) over the next five years according to India Ratings, a Fitch company (2015). The Indian pharmaceutical industry, which relied upon to develop more than 15% for each annum somewhere around 2015 and 2020, will beat the worldwide pharmaceutical industry, which was set to develop at a yearly rate of 5 percent between the same periods. In the blink of an eye the business sector size of the pharmaceutical industry in India remained at US$ 20 billion. As on March 2014, Indian pharmaceutical assembling offices enrolled with the US Food and Drug Administration (FDA) remained at 523, most elevated for any nation outside the United States. Indian pharmaceutical firms were peering toward acquisition opportunities in Japan’s developing generic business sector as the Japanese government expected to build the entrance of

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generic medications to 60 percent of the business sector by 2017 from 30 percent in 2014, because of maturing population and rising well-being costs. India’s pharmaceuticals industry contained, bio-pharmaceuticals, bio-services, bio-horticulture, bio-industry and bioinformatics, was growing at a rate of around 30% per year and was estimated to achieve US$ 100 billion by 2025. Biopharma, involving immunisations, therapeutics and diagnostics, was the biggest sub-segment contributing almost 62% of the aggregate incomes at Rs 12,600 crore (US$ 1.9 billion).

EXPANDING INTERNATIONAL Russia was the first location in Dr Reddy’s quest to expand global in 1992. Here, the company went into joint venture with Biomed, Russia’s biggest pharmaceuticals manufacturer. However, the success of Joint Venture was short lived and in a span of 3 years, Dr Reddy’s sold the same to Kremlin-friendly Sistema group. It was a scandal that led to major financial setback, forcing the company to take the extreme step. However, by 1993, Dr Reddy’s had entered into another Joint Venture in the Middle East. Amidst this, the company had setup a couple of formulation units which proved to be the game changer. Now, the company would export active pharmaceutical ingredients to these units which would then convert them to finished products. It was in 1994 that Dr Reddy’s started to look beyond Europe and Middle East and it was at that time that the United States came into its radar. The company then started building state of the art manufacturing facilities in the states and focused on the US generic market. Dr. Reddy’s Laboratories was also planning to extend its access in Europe and develop its proprietary products business through the next two years. The organisation was looking to go ahead through mergers and acquisitions. DRL was doing good business in USA, earning around 45% revenue and Russia becoming the second largest market abroad. In the United States, pharmaceutical organisations faced stiff competition and tight regulations. Europe (excluding Russia) contributed just four percent to the total income and Dr Reddy’s was looking forward to grow the business in France, Italy and Spain in the coming years. At present, the proprietary products contributed three to four in revenues and the company would like to develop the share and expect approval from the US Food and Drug Administration. The organisation would anticipate that the proprietary business to grow sizably in the next three to four years.

ENTRY IN EUROPEAN MARKET DRL’s entry into Europe could be categorised according to its business portfolio. The business portfolio of DRL business processes could be broadly categorised as: Research and Development (R&D); Active Pharmaceutical Ingredients (API) and Formulations. R&D included establishing R&D centers and undertaking R&D initiatives in overseas; API is a chemical molecule in a pharma product that gave the claimed therapeutic effect; formulations produced API and then also manufactured final product and this was the end product of the medicine manufacturing process.

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In 1987, DRL started to export APIs to Europe and thus became the first Indian pharmaceutical company to export APIs to Europe. DRL strengthened its European operations with the acquisition of two pharmaceutical firms in the United Kingdom in 2002. BMS Labs and Meridian were the two firms, which were acquired by DRL and thus allowed Reddy’s to expand geographically in the European market. In the late 2000, DRL installed two R&D centers for generics research; one in the UK and one in Netherlands. In spite of its continuous, acquisitions and expansion strategies in Europe, the European continent contributed only 4% revenue to DRL in the early 2000.

DRL’S Challenges DRL had few setbacks in early 2000s against pharmaceutical industry giants Novo Nordisk and Pfizer. Its foray into drug discovery led the Indian pharmaceutical giant into a huge loss; profits had fallen down to 87.3% from 2003 to 2004. Also the initiatives of Big Pharmaceutical companies of the US to pre-empt generic companies from eating into their sales, made US a battleground for DRL. DRL, in order to achieve its vision of becoming a billion dollar company; to move forward with its geographical expansion strategy and to overcome its losses started courting Betapharm.

ROLE OF GOVERNMENT Dr Reddy’s gave a high measure of annual tax to the government for producing, importing and exporting items. The new regulations in Indian Drug Pricing Policy termed the drug pricing as irrational and unreasonable. A government committee investigated the drug pricing mechanism, as there had been claims that the organisations were making huge margins, which goes very high. This prompted higher costs and contract net revenues which burdened for both, the company and the industry. Furthermore, Russia had passed a law, which mandated pharmaceutical suppliers to setup local plants in order to get the permit of distributing their items in the Russian market. This would prompt higher tax assessment in the Russian market too. Nonetheless, the relationship between Dr Reddy and Russia suggested that the company is supportive of such a thought as it would open its new supply channels towards Eastern European nations. A special purpose program supported the rebuilding of the Russian pharmaceutical industry, which proved to be beneficial for Dr Reddy’s to deliver in future in this market.

BETAPHARM ACQUISITION Around 66% of the world’s second largest European generic market was held by Germany. Betapharm, which was acquired by a US-based private equity firm 3i in 2004, was the fourth largest generic pharma company in Germany. Being one of the established ‘one-stop-shops’ of the German generic market, Betapharm also had a well-established distribution channels in Germany. Stalking the Betapharm for over two years, finally in February 2006, DRL acquired 100% stake in Betapharm for $560 million, which was considered as India’s first major Merger and Acquisition in pharmaceutical sector.

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GERMAN HEALTHCARE SECTOR REFORMS Having the world’s oldest national health insurance system, the German healthcare system had been funded by mandatory public and private health insurance schemes. Germany recorded a high healthcare expenditure of about 10.7% of GDP. The cost of drugs were increasing substantially; around 60% from 1990s to 2000s. In order to contain the rise in costs, the government started to introduce reforms in a phased manner beginning in 2004. The most important change was the transition of German healthcare system to a “tender-based” system, which transformed the attractive generics market to a commoditised one.

CONSEQUENCES FACED The overnight change of the German healthcare sector gave a huge blow to the DRL. In the fourth quarter ended 31 March 2007, DRL’s EBIDTA dropped to 16%. The results of the failure of this deal were also witnessed in the domestic market. There was no new product launch in the Indian market unlike its competitors, thereby losing its position as one of the top ten pharmaceutical companies in the domestic market in the year 2008–09. DRL took a big gamble when it was already facing setbacks in the US generic market, DRL’s biggest overseas generic market. True to what analysts has said, the German healthcare market changed almost overnight. German government’s healthcare sector reforms brought down the drug prices and thus its aim of securing access to the second largest lucrative German market after the US turned into a liability.

DECISION AT HAND The company is looking to move forward after the setback of Betapharm. The board is counting on global expansion to give much needed fresh breath to the company. Mr Sethi will be a vital person that the board will look upon, when they deliberate different strategies required to go further global. Mistakes have been committed in the past and all the decisions from here on need to be well inspected to make sure that things fall in place. As the Chief Financial Officer, Umang Vohra quoted, “We realised we should make acquisitions that improved the capabilities within the organisation, against buying a company in some market that merely increased the turnover”. Dr Reddy’s in all likelihood would like to go for joint ventures, mergers and acquisitions in its spree of further global expansion. Sethi and his team now have a task of penning various considerations the company needs to take into account before they start with the big task of going global. Should they refrain from acquiring giants in order to keep future risks low? Should the company be bowed down by the fact that they failed big time in Betapharm and should they now go slow? Should they go for Greenfield investment or should they trust again on mergers and acquisitions? There are lot such questions left to be answered but it is time in hand that is limited. A week is not much to contemplate over such major issues. For this, he has arranged a meeting with his counterparts due to arrive the next day from various international offices of Dr Reddy’s.

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QUESTIONS FOR DISCUSSION 1. What were the main reasons behind the failure of Dr. Reddy’s labs acquisition of Betapharm? 2. What are the points DRL should think before taking a decision to expand their business through acquisition? 3. What would your recommendations to Mr Sethi?

EXHIBITS Exhibit 3.1 Dr. Reddy’s Product Mix FY2015 1% 18%

81%

Global Generics Pharmaceutical Services & Active Ingredients Proprietary Products & Others

Exhibit 3.2(a) Net Revenue of Dr. Reddy’s Laboratories

Dr. Reddy’s Laboratories: Entry in German Market

Exhibit 3.2(b) Net Profit of Dr. Reddy’s Laboratories

Exhibit 3.3 Global Revenue of Pharmaceutical Industry (USD)

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Exhibit 3.4 Region Wise Sales Breakup

Exhibit 3.5 Dr. Reddy’s Global Presence

REFERENCES 1. http://forbesindia.com/printcontent/21482 (accessed 12 March 2016). 2. http://indiainbusiness.nic.in/newdesign/index.php?param=industryservices_landing%2F347%2F1 (accessed 10 February 2016).

Theme III Industry Analysis

Case 4. Linking the World’s Professionals Case 5. Airtel Zero

Linking the World’s Professionals Case Context LinkedIn has reported a user base of 300,000,000 in more than 200 countries. The official statement places its revenues from the premium subscriptions up to $95.5 million. This wide reach and impact was quoted by Forbes as, “LinkedIn is, far and away, the most advantageous social networking tool available to job seekers and business professionals today.” It is mainly used for professional networking, offering services in more than 20 languages. This social media giant was co-found by an American internet Entrepreneur Reid Hoffman in December 2002 along with his former colleagues from SocialNet, PayPal and Fujitsu; and a college classmate. His colleagues from PayPal, Peter Thiel and Keith Rabois, were the first investors in LinkedIn which made the tagline of LinkedIn true apparently. Hoffman worked as the founding CEO for the first four years and then moved on to be the chairman and president for Products in February 2007. He was further assigned the post of Executive Chairman in June 2009 which he still holds. Hoffman holds a strong feeling that people are unaware of the uses of services provided by LinkedIn and they should be helped out. In an interview in 2012 he was quoted saying, “you have to think proactively about how to use a tool that enables your ability to move in ways that you were not able to move before, and most of people are not very good at that.” Currently LinkedIn is led by CEO Jeff Weiner, who was previously a Yahoo executive. INTRODUCTION The Evolving Phase at LinkedIn Headquartered in California, Mountain View, LinkedIn has various other offices in New York, Omaha, Dublin, London, Chicago. In late 2003, series A investments for LinkedIn were led by Sequoia Capital raising funds for the company. LinkedIn reached profitability in March 2006. Greylock Partners, Sequoia Capital and other venture firms bought a 5% stake in the company in June 2008 for $53 million. It shot the valuation of LinkedIn to approximately $1 billion. Funded by the various investment firms like Bain Capital ventures, Bessemer Venture Partners and European Founders Fund along with old investors like Greylock and Sequoia the company received an investment of $103 million in January 2011.

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The filing of initial public offering (IPO) was seen by LinkedIn under the NYSE symbol “LNKD”. It traded its first shares on 19 May 2011. Though the opening price of the first day trade started from $45 per share, but it swelled up to 171% and closed at $94.25 allowing the site to revise its underlying infrastructure shortly after the IPO. This was done to allow the acceleration of revision-release cycles (Exhibit 4.1).

STEPPING UP BUSINESS – THE FIRST ACQUISITION After opening an international headquarters in Dublin in 2010, it was boosted by a $20 million investment from Tiger Global Management LLC, which had a valuation of around $2 billion. The deepened pockets allowed it to make its first acquisition known as “Mspoke” improving its premium subscription ratio by more than 1%. In October 2010 it was ranked tenth out of top 100 most successful startups by Silicon Valley Insider, where the top four social media sites were Facebook, Zynga, Wikipedia and Skype. It was valued at nearly $ 2 billion by December 2010 in private markets (Exhibit 4.2).

APPLICATIONS PLATFORM LinkedIn enabled an applications platform in October 2008. It not only provided its own application, but also linked other online services to be accessed in a member’s profile. The very first applications usage were Amazon reading list that displayed books which the members read, a connection to Tripit, WordPress, a Six Apart and TypePad application which displayed the latest postings on blog by the members within their LinkedIn profile. By November 2010, LinkedIn had taken a new initiative to allow the businesses to list their services and products on the profile pages of company. It also allowed the members to “recommend” these products and services along with writing their reviews about them. LinkedIn on looking at the potential market of untapped smart phone users around the globe which were increasing in numbers every hour by February 2008, launched a mobile version of the site which with a reduced feature set was accessible on mobile phones. It had been updated, upgraded and enhanced since its advent and was available in different languages.

REVENUE MODEL Around mid-2008, the company launched LinkedIn Direct Advertisements in the area of sponsored advertising. In the same year around October, it disclosed its idea to share the relationships among professionals and leverage that professional network capital of 30 million members for B2B research. Henceforth, it started to experiment more on professional network capital revenue model than sponsored advertising. It also announced its sponsored updates advertisement service on 23 July 2013 (Exhibit 4.3). Now by paying a fee, companies and individuals could now get their content sponsored by LinkedIn and reach to their professional network. It became a common way to generate revenue for these social media sites (Exhibit 4.4).

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August 2010, Acquisition of MSpoke On 4 August 2010, LinkedIn announced its first acquisition, MSpoke, a Carnegie Mellon startup, and improved its premium subscription ratio by 1%. The details of the acquisition were not disclosed. Another very interesting feature at LinkedIn was their recommendations model, which help members to remain visible on certain sites. MSpoke technology analysed a member’s profile information to recommend other members. Regarding the MSpoke acquisition, LinkedIn’s CEO Jeff Weiner also concluded on the commonalities in terms of relevant content of LinkedIn and MSpoke. The same set of priorities among partners made this acquisition a very smooth move. The members of MSpoke team were very competent and technically sound; their knowledge also helped LinkedIn to perform better. The objective of LinkedIn was to connect professional people, bring them to a common platform, which could provide them better opportunities. LinkedIn became a common place for all professionals to have a membership and refer the same information to other users. This is one of the reputed websites, which is accessed by employers, employees, students, academicians and almost all the professionals. People could utilise the existing information for their betterment in different ways. It was a web 2.0 era, where users were the content providers, hence people were the key for any social media network. They made it more open platform by creating options like ‘Like’, ‘Follows’ and ‘Discussion’ options like other social network platforms like Facebook, Twitter, etc. Also, MSpoke’s technology helped them to create more relevant and appropriate news feed for LinkedIn members.

September, 2010, Acquisition of ChoiceVendor On 23 September 2010, LinkedIn announced its second acquisition, ChoiceVendor, based in San Francisco. It was a startup that provided real-world ratings and reviews of business-tobusiness service providers in more than 70 categories across the United States. These two acquisitions helped LinkedIn to make a strong competent team to further enhance the glow of LinkedIn among other social network sites. LinkedIn did not want to lose the talent resources at ChoiceVendor like Yan-David and Rama Ranganath (co-founder of Choice Vendor). LinkedIn CEO Jeff Weiner was very much impressed by ChoiceVendor team. Also, ChoiceVendor cofounder gave a very overwhelming response to the LinkedIn CEO. By 2010, LinkedIn added yet another important feature for its users by allowing businesses to list their products and services on company profile pages. The users could also recommend these products and services and write review about the same. Any member having an active email id could add content to their business profile page. They also provided an option for the members those who don’t want to be highlighted to maintain their privacy through settings. Recommendations were found to be most trusted sources for checking someone’s credentials out of all the features provided by LinkedIn. These recommendations were used not only by employers for hiring, but also by marketers to do business with different companies and make decisions. In some way, LinkedIn provided a complete package and best features of other social networking sites like Facebook, Yelp, Research Gate and Twitter.

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January 2011, Acquisition of CardMunch On 26 January 2011, LinkedIn acquired CardMunch, a mobile application maker that scanned business cards and converted them into contacts. It was a great business application for iPhone users. When we meet new business people and they hand their business card, we can scan them into the iPhone and store their information. This helped in avoiding threat of loss. Every business card submitted was transcribed, edited and reviewed by multiple workers to guarantee accuracy. Firstly, it captured an image of a business card using the application. Then, the workforce manually transcribed every card that was submitted for guaranteed accuracy. Finally, contacts were returned directly to the phone within minutes. Overall, it was a business card scanner with human-powered transcription. LinkedIn made the CardMunch transcription service available to everyone, free of charge. It helped LinkedIn to enhance their business model. In any circumstances, it was a useful tool and gave returns on LinkedIn investment.

January 2011, Initial Public Offereings LinkedIn filed an IPO in January 2011 and traded first shares on 19 May 2011, under the New York Stock Exchange (NYSE) symbol “LNKD”. The share prices of LinkedIn rose by 171%, with a starting price of $45 per share and closing price of $94.25. According to LinkedIn there were 500 million professionals in the world, which meant a long way ahead for them. The entry of LinkedIn in the public market was setting precedence for other players like Zynga, Chegg, Groupon, and, most anticipated of all, Facebook. Through January 2011, the company received a sum of $103 million of investment. Its investors included Sequoia Capital, Greylock Partners and several others. The Q1 revenues were $93.9 million in 2011.

February 2011, International Restriction In February 2011, it was reported that LinkedIn was blocked in China after calls for a Jasmine Revolution, on the model of the Tunisian and Egyptian revolutions. It was speculated to have been blocked because it was an easy way for agitators to access Twitter, which had been blocked previously. Though, the access to LinkedIn was restored after a day of being blocked there. This disruption could have been longer and harmed the brand equity of LinkedIn in the international market. Since China was a world largest internet market, it might have impacted the IPO of LinkedIn.

August 2011, CEO on the Future of LinkedIn On August 2011, CEO Jeff Weiner in an interview with Fortune gave his insight on the future plans of the company for the coming quarter. He stated that they were going to continue their investment in core product areas like the profile, mobile, search, the home page, groups and their open platforms. Their recent launch “Apply with LinkedIn,” would help them to continue their momentum on the hiring solutions front and it was one of their largest and fastest growing revenue streams. Weiner wanted LinkedIn to act as a platform that connected talent and skills with the available opportunities at a massive scale. The prevalent macroeconomic condition also led to a lot of anxiety, with people out of work and looking for employment.

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Weiner also listed out his three goals, one was the continuation of investment in products that created value for its members. The second was to continue to scale-up their technology platform globally. And third was to expand globally. He also wanted the availability of LinkedIn in multiple languages to build a global reach in terms of sales offices.

October 2011, Acquisition of Connected and IndexTank On 5 October 2011 LinkedIn acquired Connected, a social CRM (Customer Relationship Management) start-up. This would be of help to businesses and firms which do not want to use Salesforce. Connected would help users manage their contacts online, additionally it can also be used to show past emails and calls with a specific contact by retrieving data from Google Voice and Gmail. With one of its previous acquisitions CardMunch, it had the capabilities to build its own CRM tool and target small to medium businesses. On 11 October 2011 LinkedIn acquired IndexTank, which was a real-time, hosted search engine service that helped developers to build applications based on searches, without the hindrance of hosting their own software for search. The financial details of this acquisition were not disclosed. In a statement on the deal, LinkedIn stated that the acquisition of IndexTank would bring great search technology and talent to LinkedIn, which would eventually help their internal teams develop better search products and experiences for their members. IndexTank brings a lot of capabilities to the table. IndexEngine analyses user-generated contents through an application programming interface. Also, there is Nebulizer, which is a framework to manage multiple indexes and to offer them as services.

February 2012, Acquisition of Rapportive On 22 February 2012 LinkedIn acquired Rapportive, which made a browser plug-in that collects contact information from social networks such as Facebook, Twitter and LinkedIn and feeds them to the Gmail application. LinkedIn was quite aggressive in terms of acquiring other companies, which could add value to their business objectives and could build a path for its future growth plans. Rapportive provided timely relevant information, which was used by professionals, thus it was much in line with the mission of LinkedIn to help professionals be more productive and successful in their careers. In general, Rapportive will not really affect the performance of LinkedIn, but the presence of more information about job candidates will facilitate recruiters in making better and well-informed decisions.

May 2012, Acquisition of SlideShare On 3 May 2012 LinkedIn acquired the content sharing platform SlideShare for $119 million consisting of 45% cash and 55% stock. CEO Jeff Weiner, in a press release explained their move stating that presentations were one of the prominent ways in which professionals share their industry experiences and knowledge. He also stated that presentations enable the discovery of new connections and assist to develop insights one needs to be more successful in their professional careers, which aligns perfectly with LinkedIn’s mission and thus they were very excited to welcome the SlideShare team. Rashmi Sinha, CEO of SlideShare commented that they built

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SlideShare to help professionals to connect to people through their knowledgeable contents. Thus, an alignment with LinkedIn was a perfect alignment with their vision. On 17 April 2014 LinkedIn released an Android app and new mobile features for SlideShare. This made it easier to access, view and share presentations on the go, but it also helped in the discovery of content through various people and people through their shared content, as stated by LinkedIn product manager Andri Kristinsson.

The Way Ahead During the IGNITION conference of Business Insider in November 2012, LinkedIn CEO Jeff Weiner revealed his vision for the company in the coming 5 to 10 years. He declared that he wanted LinkedIn to become the ‘economic graph’ for the global economy, a concept that was inspired by the ‘social graph’ concept of Facebook. This explained the reason for LinkedIn to be constantly making acquisitions and upgrading its services to remain the best. According to the website, 2012 was the year of transformation for the company, where Project Inversion and completely re-architected website were the key highlights.

A Stumbling Block In June 2012, LinkedIn faced one of its biggest crisis till date. On 5 June 2012, the site was hacked and nearly 6.5 million customers’ passwords were stolen by Russian cybercriminals. The stolen passwords were available online as plain text by the morning of 6 June. This was known as the LinkedIn Hack. LinkedIn was still using SHA-1 cryptography, while the world had moved ahead. This incident forced a rethink. On its part, LinkedIn only apologised and asked its users to change their passwords. The customers and communities alike, reacted angrily. LinkedIn itself faced a lot of difficulties, as it had to email all the members with security instructions and also the instructions to change their passwords. LinkedIn then improved its security measures as well. Creative Thinking

The acquisitions during the period from 2012 to 2013 provided credibility to the strategic moves of the company, which slowly kept on consolidating its position in the market. Of the major acquisitions in the year 2012, SlideShare was the most important. SlideShare was a web based service that allowed users to upload presentations and share them with others. LinkedIn inked the deal at $119 million, of which 45% was cash and 55% was stock. The creative vision of the CEO in answering how SlideShare fitted at LinkedIn, was commendable. “Presentations are one of the main ways in which professionals capture and share their experiences and knowledge, which in turn helps shape their professional identity,” said LinkedIn CEO Jeff Weiner. The benefit was mutual because of the ever expanding user base of LinkedIn. These customers could make use of the powerful tool that SlideShare is to share their content and showcase their skills to the corporate world. LinkedIn launched Influencers – a service that enabled one to follow more than 250 global thought leaders. This fostered rich discussions and enabled sharing of business insights regarding issues faced by professionals around the world.

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In November 2012, LinkedIn raised $97,000 in 13 offices and 7 countries to support a men’s health initiative. Apart from this, LinkedIn also launched the iPad app, and endorsements. These features enabled the connections to recognise the skills and expertise of others in their connections, thus providing recruiters with invaluable insight. LinkedIn also launched the incubator program to enable employees to come up with their ideas once a quarter, put together a team and pitch the idea to the executive staff. Around 18 new expansion and new offices were also planned for the year. In tandem with the constant acquisitions and improvement of services, LinkedIn also upgraded its website for the first time. This dramatically changed the profile, home page, company pages and mobile experience for the users. This product was called Yearbook and it provided a summary of the features that made waves during the year.

Turning 10 LinkedIn turned 10 in 2013 and the age probably added to the wisdom of the company. First rewards of the hard work were seen when the company reached 200 million members in January. In February, it added Pat Wadors as Vice President of Global Talent Acquisition and achieved the distinction of having the highest ratio of female executives in Silicon Valley. The CEO found out a creative way to include employees in the celebrations of strong results of 2012, by gifting an iPad mini to all the employees. Another feather in the hat was when 1 million LinkedIn users added volunteers and causes section to their profiles and this reinforced the mission of LinkedIn to also have a positive impact on the world.

Focused Amidst all the celebrations and all-round developments, never did LinkedIn lost its main focus and on 11 April 2013, it acquired Pulse for $90 million. Around 90% of the deal was in stock and 10% in cash. Pulse was a popular newsreader for web and mobile as well. This acquisition helped LinkedIn in establishing itself as a definitive professional publishing platform, where publishers came to share the content and professionals came to consume the content. “We are thrilled to be able to add Pulse’s considerable talent, technology, and products to our growing ecosystem of content offerings, and we believe that they will help us accelerate our ability to deliver to our members the insights they need to be better at what they do, on any device,” said Deep Nishar, LinkedIn’s SVP of Products and User Experience, LinkedIn kept on moving in the right direction, guided by the vision of becoming an ‘economic graph’, which could map the underpinnings of the global economy, according to CEO Jeff Weiner. “The idea is to remove as much friction from that graph as possible,” Weiner said. He said, “to allow human and economic capital to flow where it’s most needed.”

Reaching Out to Improvise Important acquisitions and innovative solutions in the past one year has resulted an increase in nearly 75 million members. Around 70% of the above 75 million millions were citizens of countries other than the United States and this strengthened LinkedIn’s status as a leading professional networking company with global reach.

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Backed by innovative acquisitions, revenue in the year 2013 grew by 57% to 1.53 billion. Talent Solutions grew 64% to $860 million, Marketing Solutions by 40% to $362 million; and Premium Subscriptions increased 61% to $307 million. For Q2 2014, overall revenues grew by 47% to $534 million. The launch of rich-media spearheaded the transformation process of LinkedIn profile and this enabled the members to display visual content as part of their LinkedIn portfolio. This further contributed in increasing the number of internal member page views by 22 percent to 25 billion for Q2. Mobile formed a major part of total traffic to LinkedIn accounting for nearly 45%. Taking into account the large mobile traffic, LinkedIn developed Connected on iOS, the newest mobile app in its growing multi-app portfolio. It delivered timely updates and opportunities to interact with people and thus enhanced professional relationships. On an average, an active member used 4 days per week. In June, a major redesign of profiles was launched on their mobile app. Some of the features like recent activity such as updates and long-form posts were added in order to meet the goal of creating job opportunities for its members. This included ensuring the creation of profile of all of its members highlighting their skills and expertise, encouraging all the companies to create a page of its own which included the job opportunities available at those companies and the corresponding skills required. To address the skills required, LinkedIn focused on higher education universities and organisations which further helped the members understand where can they pursue various skills and related information. LinkedIn’s first step in building the economic graph was the acquisition of Bright (Bright Media Corporation) in February 2014. Bright utilised machine-learning algorithms to get a match for a job and tries to get it connected with the profile which suits its requirements. It further filtered out the recommendations by using data driven matching technology to provide better results. This helped companies to look for candidates with right skillsets. LinkedIn planned to foster viral member growth to connect the world’s professionals. This included optimising search engine results, improving mobile registration process, integration among the different applications. Further objectives included increasing international presence. In February 2014, LinkedIn launched a beta version of their site in simplified Chinese and China now emerged as one of the fastest growing major market for new members. A major priority of LinkedIn was to establish itself as a definitive publishing platform. This emphasised LinkedIn’s objective to provide ample and equal opportunities to its end users. Through the publishing platform, members could publish content relevant to their personal and professional experiences and enhance the chances of their employability. This was an extension of the Influencer program launched by LinkedIn to encourage thought leaders to share their content directly with the members. The Influencer program increased the volume of engagement, i.e., top posts routinely receiving views in six figures and impeccable responses. LinkedIn’s members could now leverage this opportunity and be an influencer themselves. To improve the quality of content available to its members regarding their most important contacts, LinkedIn acquired ‘Newsle’, a machine learning startup which engages the member by searching the required information faster. This technology search the relevant content in blogs, articles of people, which were mentioned somewhere in member’s profile.

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To solve the problem of cross device tracking and targeting, LinkedIn acquired Bizo which provided accurate information about B2B marketing programs. LinkedIn’s long term strategy was to use Bizo’s products and technology and thus expand B2B focussed business. Bizo helped members to access a larger audience than conventional marketing automation companies. LinkedIn expected Bizo to add approximately $3 million in Q3 and $6million in Q4. Moreover LinkedIn would be able to efficiently use Bizo’s network and serve LinkedIn customers. Through the acquisitions and other developments, LinkedIn ensured that it is on the right track while increasing monetisation and at the same time creating value for its members. Making its solutions relevant to both customers and members was an important part of their strategy and investing in targeting capabilities and analytics was an important aspect in achieving its goals.

QUESTIONS FOR DISCUSSION 1. Analyze the external environment and the industry in which LinkedIn is operating. 2. Does LinkedIn have a successful corporate level strategy? Does LinkedIn add value to the businesses within its portfolio? 3. What are the LinkedIn distinctive resources? What are the challenges faced by LinkedIn in the coming 5 years? 4. In the context of LinkedIn, analyze all the acquisitions that were made and whether they make sense?

EXHIBITS Exhibit 4.1 Roadmap of LinkedIn Year

Event

2002

In December 2002, Reid Hoffman and his colleagues from PayPal and Socialnet.com started working on an idea which aimed to build a digital network for professionals

2003

LinkedIn goes live on 5 May 2003 (the day being famous as Cinco de LinkedIn), with its five founders and 350 friends. By May end, it had 4500 members. Within six months of its launch, Sequoia Capital – a well known Silicon Valley venture capital firm invested $4.7 million in LinkedIn. By year end, LinkedIn’s membership had grown to 81000 with staff strength of 14.

Q2

Boosted by the introduction of address book uploads in late 2003, membership had grown to half a million members by April. It received $10 million in its second round of investing from GreyLock Partners. LinkedIn added a group feature and initiated a partnership with American Express to promote its offerings to small business owners.

2005

LinkedIn introduces LinkedIn Jobs – its first premium service to help its members in finding job opportunities. LinkedIn also launched a paid Subscriptions service open to recruiters, head hunters, personnel directors, sales firms and businesses to find the best talent.

2006

LinkedIn introduces public profiles and stakes its claim as the professional profile of record. Features like Recommendations and You May Know are added. Also in 2006, LinkedIn turned profitable.

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2007

LinkedIn CEO Reid Hoffman steps aside and brings in Dan Nye to lead the LinkedIn moves to Stierlin Court and opens the Customer Service Center in Omaha. Presence in nearly 120 different types of industry and increase in membership to 9 million led USA Today to describe LinkedIn as a giant in the networking industry

2008

LinkedIn opened its first international office in London and launched Spanish and French language versions of its site. The aftermath of recession forced LinkedIn to lay off 10% of its staff to focus on revenue growth and positive cash flow. It received financing in total $75 million from investors and ended the year with 33 million members.

2009

Between December 2008 and July 2009, LinkedIn faced 3 changes of CEO’S. Jeff Weiner of Yahoo joined LinkedIn as President and brought focus and clarity to LinkedIn’s mission, values, and strategic priorities. In 2009, LinkedIn released new applications for Palm, IBM Lotus, Microsoft and a global application for Blackberry

2010

By end of 2010, LinkedIn grows to 90 million members with around 1,000 employees in 10 years.

2011

In its 8th year, LinkedIn gets listed on the New York Stock Exchange. On their first day, they closed at $94.25 which was 109% above their IPO price. LinkedIn also hosted a town hall with Barack Obama (President of the United States).

2012

LinkedIn initiated the Talent Pipeline programme which enables the recruiters to easily manage all their talent leads in one place thereby increasing the pace of talent recruitment. In June 2012, LinkedIn confirmed password theft of around 6.5 million passwords. LinkedIn also introduced a new feature known as influencer programme with intent to encourage thought leaders to pen their thoughts on LinkedIn’s site.

2013

LinkedIn completed 10 years and ended the year with around 225 million members.

2014

LinkedIn focussed on its new acquisitions like Bizo, Bright and their integration into LinkedIn. It also started working on digital mapping of world economy. By the end of 2013 (financial year), LinkedIn’s members increased to 277 million.

(Source: Produced by authors)

Exhibit 4.2 Acquisitions by LinkedIn Year of Acquisition

Company Acquired

Business of Acquired Company

Financial Aspects of the Acquisition

Value Addition to LinkedIn

2010

MSpoke

Adaptive Personalisation of Contacts

$0.6 million

Helped in providing recommendations of pages or links, which resulted in display of more content and creation of more advanced news feed for the LinkedIn users or members

2010

ChoiceVendor

Social B2B Reviews

$3.9 million

Helped in providing real-world ratings and reviews of business-to-business service provider

2011

CardMunch

Social Contacts

$1.7 million

Helped in scanning and converting business cards into contacts, that too free of charge, which, in turn, resulted in enhancement of their business model as it created a huge viral spread and business dependence

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2011

Connected

Social CRM

Not disclosed

Manage contacts online and also retrieve data from Google Voice and Gmail

2011

IndexTank

Social Search

Not disclosed

Help developer to build applications based on searches

2012

Rapportive

Social Contacts

$15 million (Cash)

Presence of more information about job candidates

2012

SlideShare

Social Content

$119 million (45% cash, 55% stock)

Discovery of new connections and assist to develop insights

2013

Pulse

Web and Mobile Newsreader

$90 million (10% cash, 90% stock)

It helped LinkedIn in becoming a professional publishing platform, where the publishers came to share the content and professionals came to consume them. Thus LinkedIn members used to get insights into what aspects they needed to improve.

2014

Newsle

News Alert Service

Not disclosed

LinkedIn is currently working on Newsle’s Integration into LinkedIn. This service will help them accelerating in delivering relevant content to their members. Newsle’s technology finds blogs and articles that mention people who may be professionally relevant to you and notifies you seconds after publication

2014

Bright

Job Matching Service

$120 million (77% stock, 23% cash)

Bright is a service that utilises machinelearning algorithms to recommend jobs to those looking for work that best fit their experience. This has helped LinkedIn members to find relevant jobs and has also helped companies to find relevant employees

2014

Bizo

Marketing Programs

$175 million (90% stock, 10% cash)

Bizo

B2B display Platform

Bizo is a marketing platform that enables precise and measurable B2B multi-channel marketing programs. LinkedIn’s long term strategy is to use Bizo’s products and technology and thus expand B2B focussed business. LinkedIn expects Bizo to add approximately $3 million in Q3 2014 and $6million in Q4 2014

(Source: Produced by authors)

Ad

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Exhibit 4.3 Income Statement of LinkedIn Year ending Dec 2013 Revenue Cost of Revenue Gross Operating Profit

1.53B 202.91M 1.33B

Year ending Dec 2012

Year ending Dec 2011

Year ending Dec 2010

972.31M

522.19M

243.10M

125.52M

81.45M

44.83M

846.79M

440.74M

198.27M

Selling, General, and Administrative Expenses

747.67M

452.90M

239.57M

94.04M

Research & Development

395.64M

257.18M

132.22M

65.10M

Operating Income before D & A (EBITDA)

182.33M

136.71M

68.94M

39.13M

Depreciation & Amortisation

134.52M

79.85M

43.10M

19.55M

Interest Income

2.90M

Other Income – Net

–1.48M

Total Income Before Interest Expenses (EBIT)

49.23M

Pre-Tax Income

0 2,52,000.00

0

64,000.00

–2.90M

–-6,74,000.00

57.11M

22.94M

18.97M

49.23M

57.11M

22.94M

18.97M

Income Taxes

22.46M

35.50M

11.03M

3.58M

Net Income From Continuing Operations

26.77M

21.61M

11.91M

15.38M

Net Income From Total Operations

26.77M

21.61M

11.91M

15.38M

(Source: LinkedIn_Annual Report_2013, http://files.shareholder.com/downloads/ABEA-69T44N/1408647803x0xS1271024-13-10/1271024/filing.pdf (accessed 23 September 2014))

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Exhibit 4.4 Balance Sheet of LinkedIn Year ending Dec 2013

Year ending Dec 2012

Year ending Dec 2011

Year ending Dec 2010

Cash and Equivalents

803.09M

270.41M

339.05M

92.95M

Receivables

302.17M

203.61M

111.37M

61.35M

Other Current Assets

44.39M

21.06M

12.66M

8.68M

Total Current Assets

2.76B

1.02B

725.93M

172.21M

ASSETS

Property, Plant & Equipment, Gross

605.40M

328.34M

192.25M

95.13M

Accumulated Depreciation & Depletion

243.65M

141.67M

77.40M

38.39M

Property, Plant & Equipment, Net

361.74M

186.68M

114.85M

56.74M

Intangibles

43.05M

32.78M

8.10M

5.23M

Other Non-Current Assets

41.66M

28.86M

12.58M

4.01M

597.32M

363.53M

147.77M

65.98M

873.70M

238.19M

28.22M

2.06M

Total Non-Current Assets Total Assets

3.35B

1.38B

Accounts Payable

66.74M

53.56M

Other Current Liabilities

10.85M

9.10M

Total Current Liabilities

641.99M

415.38M

226.66M

105.47M

Deferred Income Taxes

14.88M

27.72M

18.55M

6.62M

Other Non-Current Liabilities

61.53M

30.81M

3.51M

1.86M

Total Non-Current Liabilities

81.41M

58.53M

22.06M

96.47M

723.40M

473.91M

248.72M

201.94M

LIABILITIES & SHAREHOLDER EQUITY

Total Liabilities Preferred Stock Equity

0

Common Stock Equity

2.63B

Common Par Additional Paid In Capital Retained Earnings Other Equity Adjustments

12,000.00 2.57B

0 908.42M 11,000.00

0

0 624.98M 10,000.00

420,000.00

15.85M 20.40M 4,000.00

879.30M

617.63M

25.07M

55.62M

28.85M

7.24M

-4.67M

314,000.00

260,000.00

100,000.00

-3,000.00

Total Capitalisation

2.63B

908.42M

624.98M

36.25M

Total Equity

2.63B

908.42M

624.98M

36.25M

Total Liabilities & Stock Equity

3.35B

873.70M

238.19M

101.48M

94.50M

Total Common Shares Outstanding Treasury Shares

120.35M 23,584.00

1.38B 109.68M 0

0

0

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Basic Weighted Shares Outstanding

113.64M

105.17M

77.18M

0

Diluted Weighted Shares Outstanding

118.94M

112.84M

104.12M

0

Number of Employees Number of Part-Time Employees

5045

3458

2116

990

0

0

0

0

(Source: www.investors.linkedin.com (accessed 24 August 2014))

REFERENCES 1. “Financial Statements for LinkedIn Corp,” Google Finance. 2. “Fireside Chat With Reid Hoffman,” August 2012. 3. http://allthingsd.com/20110127/here-comes-another-web-ipo-linkedin-s-1-filing-imminent (accessed 5 June 2014). 4. http://amigobulls.com/stocks/LNKD/income-statement/annual (accessed 27 February 2014). 5. http://edition.cnn.com/2011/TECH/social.media/02/25/china.blocks.linkedin.fastco/index.html?ir ef=NS1 (accessed 30 March 2014). 6. http://files.shareholder.com/downloads/ABEA-69T44N/1408647803x0xS1271024-13-10/1271024/ filing.pdf (accessed 17 September 2014). 7. http://fortune.com/2011/08/04/linkedin-ceo-jeff-weiner-talks-explosive-growth/ (accessed 27 July 2014). 8. http://gadgets.ndtv.com/apps/news/linkedins-redesigned-mobile-app-now-available-for-android-and-ios772705 (accessed 18 April 2015). 9. http://globalb2bmarketing.com/?s=linkedin (accessed 25 August 2015). 10. http://mna.im/Company/UniverseSearchMore.aspx?searchterm=linkedin (accessed 23 September 2016). 11. http://money.cnn.com/2011/01/27/technology/linkedin_ipo/index.htm (accessed 20 March 2014). 12. http://seekingalpha.com/article/2051443-linkedin-250-potential-for-2014-on-bright-acquisition-and-china-expansion (accessed 23 July 2014). 13. http://shoutex.com/cardmunch-iphone-app-for-business-users/ (accessed 20 September 2014). 14. http://techcrunch.com/2011/10/11/linkedin-buys-real-time-hosted-search-startup-indextank/ (accessed 24 June 2014). 15. http://techcrunch.com/2012/05/03/linkedin-acquires-professional-content-sharing-platform-slidesharefor-119m/ (accessed 3 July 2015). 16. http://topdogsocialmedia.com/customized-linkedin-help/ (accessed 6 September 2014). 17. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVCfFxCuMF.g (accessed 17 May 2014). 18. http://www.businessinsider.com/2010-digital-100-companies-1-100?IR=T (accessed 20 July 2014). 19. http://www.businessinsider.com/linkedin-is-buying-slideshare-2012-5?IR=T (accessed 19 March 2014). 20. http://www.businessinsider.in/LinkedIn-Reaches-The-Milestone-Publishes-1-Million-Member-Posts/ articleshow/45868959.cms (accessed 3 July 2015). 21. http://www.clickz.com/clickz/news/1866328/linkedin-adopts-recommend (accessed 12 March 2014). 22. http://www.computerworlduk.com/news/open-source/3326850/linkedin-open-source-indextank(accessed 29 June 2014).

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23. http://www.eweek.com/c/a/Messaging-and-Collaboration/LinkedIn-Buys-Rapportive-Gmail-ContactPlugin-208870/ (accessed 19 August 2014). 24. http://www.forbes.com/2010/08/03/social-network-mspoke-technology-linkedin.html (accessed on 19 August 2014) 25. http://www.forbes.com/sites/tomiogeron/2011/10/05/linkedin-acquires-social-crm-company-connected/ (accessed 20 March 2014). 26. http://www.ibtimes.com/why-linkedin-bought-rapportive-we-fell-love-414784 (accessed 10 January 2014). 27. http://www.informationweek.com/software/social/linkedin-debuts-slideshare-app-mobile-updates/d/did/1204534 (accessed 17 September 2014). 28. http://www.linkedinnews.org/ (accessed 5 August 2015). 29. http://www.opencrmitalia.com/ (accessed 4 June 2015). 30. http://www.post-gazette.com/businessnews/2010/08/04/CMU-startup-mSpoke-acquired-by-LinkedIn/ stories/201008040161 (accessed 30 March 2014). 31. http://www.writtenbysumer.com/blog/ (accessed 30 August 2015). 32. http://www-cgi.cnn.com/TECH/computing/9905/26/netstox.idg/index.html (accessed 3 July 2015). 33. https://press.linkedin.com/ (accessed 29 August 2015). 34. “LinkedIn–About,” LinkedIn Corporation. 35. LinkedIn_Annual Report_2013, 36. “LinkedIn: How It’s Changing Business,” Fortune. 37. “Tiger Global Said to Invest in LinkedIn at $2 billion Valuation,” Bloomberg. 38. www.businessinsider.com (accessed 12 September 2014). 39. www.emea.marleting.linkedin.com (accessed 20 March 2014). 40. www.ourstory.linkedin.com (accessed 11 March 2014). 41. www.techcrunch.com (accessed 15 January 2014).

Airtel Zero

Case Context Airtel zero was a very smart move by Airtel, which could have enabled it to change the industrial forces in its favour by a huge margin. However, this went against the very crux of net neutrality concept, following which Airtel was forced to withdraw this plan. What inference can we draw from it? It also showcases some strategy which go against the basic ethics in view of the people, cannot be implemented irrespective of the benefits that they propose, and in return can create a public relations nightmare, as Airtel faced, a point magnified by the presence of social media, something which every manager should take care of in his decision making. Airtel will have to revise its strategy so that they can gain the trust of the customer base, and launch these concepts in new forms. Telecom Regulatory Authority of India (TRAI) barred Facebook Free Basics and Airtel Zero released notification on differential data pricing, “No service provider shall offer or charge discriminatory tariffs for data services on basis of content” (Economic Times, 8 February 2016). The country’s telecom regulator on 8 February 2016 barred discriminatory pricing of data services, effectively prohibiting controversial zero-rated products such as Facebook’s Free Basics and Airtel Zero with a maximum Rs 50 lakh penalty for violators. INTRODUCTION Airtel, registered as Bharti Airtel Limited was one of the leading global telecommunication services company. It had operations in 20 countries spanning Asia and Africa (Exhibit 5.1). It was headquartered in New Delhi, India. In terms of number of wireless services subscribers, it was listed as the world’s third largest provider and in India it was the biggest wireless service provider (Exhibit 5.2). It had worldwide revenues nearing $15 billion and steadily it had forayed into services like fixed line broadband services, direct to home satellite based television services and it also had in principal payments bank license in India (Exhibits 5.3 and 5.4).

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TIMELINE OF THE AIRTEL STORY The Start Started from the vision of the current CEO and MD, Sunil Bharti Mittal, it was one of the first private players to enter the highly regulated telecom market in India. Bharti successfully bid for one of the four telecom licenses available at that time for private players.

1998 First Launched in Delhi and HP Due to the highly regulated nature of the market, Mittal had to face difficulties in launching its services in Delhi due to clauses like prior experience in the telecom market for which he had to sign a deal with the Dutch Telecom Company Vivendi, but shortly after launching its services it became the quickest and first Indian telecom company to reach 2 million subscribers.

2004 Pan India Footprint: India’s Largest Telco After its start, Airtel had several acquisitions all over India. In order to have operations in Karnataka and Andhra Pradesh, it acquired JT Holdings in the year 1999. It acquired the services of Skycell Communications in 2000 in Chennai. To gain entry in the Eastern region of the country, in 2001, it acquired Spice Cell. The parent company, Bharti Enterprises went public in 2002, to list on the Bombay Stock Exchange and the National Stock Exchange. To enter Rajasthan Airtel acquired control of Hexacom in 2004. Thus by the year 2004, by expanding to even areas like Andaman and Nicobar, Airtel was one of the few to have a pan India presence. And it was clearly the largest telecommunications company in India and by now it had started focusing on value added services like caller tunes, Internet services on mobile, etc.

2008 Launch Direct to Home Services (DTH) Airtel launched its satellite based direct to home services in the year 2008 and was one of the leading players in this sector with around 10 million subscribers all over India. In the current scheme of things, it provides services like HD television and set top boxes that can record live content.

2010 Acquired Zain; Present in Over 20 Countries Throughout the late 2000s, in order to gain entry into the African continent Airtel had several talks with the South Africa based telecommunications company MTN to acquire all of its operations in Africa, but due to several disagreements a final agreement could not be reached. In the year 2000, it acquired the operations of Africa based Zain Telecom for $10.7 billion, which is the largest International acquisition by an Indian Telecom till date. This allowed Airtel to have operations in 17 African countries like Kenya, Nigeria, Tanzania, Uganda, etc. By entering into countries like Sri Lanka and Bangladesh, Airtel had established its presence in 20 countries across the world by 2010.

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2010 New Brand Launch To reflect its international presence and the introduction of high speed 3G and 4G services, Airtel underwent a substantial brand transformation, which was seen in the form of a new logo, different look and feel in the retail presence and new advertisements.

2011 3G Services Launched The launch of 3G services marked a new era for the telecommunications market with more focus on high speed services than the traditional voice services and it also brought new competitors in form of Aircel, potential entry of Reliance Jio, etc. “It is indeed the start of a new era when 3G services in India roll out on Airtel’s network. World over ‘Data traffic’ on the back of high speed internet and use of social networking has already exceeded the ‘Voice traffic’. India is ushering in the domain—though later than most of the world—but no doubt we will catch up at a much faster speed. 3G is much more than a technology migration–it is a transformational shift experience on the back of a world class delivery network”. —Sanjay Kapoor, CEO – Bharti Airtel Ltd (India & South Asia) Airtel had the largest 3G spectrum holdings among the private telecom providers in India and it became the first private telecom to launch 3G services in India by launching world standard HSPA network in its largest subscriber base in Karnataka in January 2011. Currently Airtel continues to expand its 3G services across India, which can be seen from the increased percentage of 3G sites in India and by far it has the widest high speed 3G coverage across India (Exhibit 5.5).

2013 First Operator to Launch 4G in India After Reliance Jio, in the 4G spectrum auctions, Airtel had bid for the 2nd largest amount of spectrum, but it was the quickest to launch 4G LTE (Long Term Evolution) in India, this was achieved by launching 4G services in the form of high speed dongles in the state of Karnataka.

2014 Operator in the World – Crossed 300 Million Customers By the year 2014 Airtel had reached 300 million subscribers all over the word and had become the third largest telecom operator in the world in terms of the number of subscribers, but still more than 50 percent of its revenue comes from its home base of India and the rest is majorly populated by its Africa operations (Exhibit 5.6).

2015 Pan India Data Operator with 4G Across 334 Towns and 3G in 21 of 22 Circles Sensing the looming threat of the Pan India launch and deep pockets of Reliance Jio, Airtel launched 4G services across numerous cities in India in a matter of months. And within no time, as like previous launch of 3G and other services, it had the widest coverage and the largest number of 4G subscribers in its network in India.

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In order to gain a strong foothold in the market, it provided 4G at 3G prices to all its subscribers, offered free home delivery of 4G ready sim cards, launched marketing campaigns like the Airtel 4G speed challenge, etc. But according to industry experts and Airtel itself, this war is still far from over due to the impending launch of potential market disruptor Reliance Jio, which may completely change the face of the Telecom sector in India. Airtel now continues its focus on expansion of its 3G and 4G network under its project Leap, where it has promised investments of more than Rs 60,000 crores to improve its network and bring connectivity across each and every part of India. Currently it is constantly launching new value added services like music, movies and Games under the Wynk brand to differentiate it from its competitors. In the month of February, 2016 it became the first telecom operator in India to launch LTE Advanced (4G+) network in the country by deploying the services in the state of Kerala. LTE Advanced is the next generation 4G service, which promises speeds much greater than the current 4G deployment. In April 2015, Airtel was given an in principal approval by RBI to set up a payments bank, which it plans to launch and implement at the earliest, this would allow it to accept deposits from customers not amounting to more than Rs 1 lakh. The main motive of payments bank is financial inclusion of people who are still out of the banking system.

Airtel Zero In the midst of all this Airtel launched one of its most ambitious program – Airtel Zero. It was launched in April 2015 and it planned to offer users free access to certain mobile applications and services from companies who have signed up with Airtel. “We are excited to launch ‘Airtel Zero’ as an open and non-discriminatory marketing platform for all developers in India – irrespective of the size of their business. We believe that this platform is consistent with India’s vital Digital Inclusion agenda and also contributes to the country’s incredible ‘Make in India’ vision”. —Srini Gopalan, Director – Consumer Business, Bharti Airtel Launched with fanfare and marketed as a service that will be the solution to digitising India. A large number of mobile subscribers in India, did not use Internet services because of the required fee or did not know how to use the Internet, thus Airtel marketed Airtel Zero as a clear solution to this and it said that this would also increase its revenue in the future. Basically it provided free access to certain applications as long as the application was a partner in this project. The idea being once people knew how to use the basic services, they will jump on to proper internet subscription plan to access other internet services, which will increase Airtel’s revenue. But this did not go well with net neutrality supporters who saw this as a clear discrimination. Flipkart was already rumoured to be in talks with Airtel as a participating app for its Zero platform, Sachin Bansal’s support to the program in the form of a tweet led to more certainty. But this support did not go well with the users who downgraded the Flipkart app across platforms as a mark of retaliation.

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And all this while Airtel was also tangled in TRAI’s Over the Top (OTT) Application consultation as Airtel was one of applicants who proposed charging for OTT’s as according to Airtel these apps were eating into their traditional telephony and messaging revenues and that too at substantially lower rates. The consultation paper for OTT’s also talked about net neutrality in India and how it would change the way we consumed data. Somewhere in the middle Airtel Zero got involved up in the protest for these ‘Over the Top Applications’. AIB, a supporter of the net neutrality created a nine-minute ‘Save the Internet’ video on net neutrality, which stated government and internet service providers should treat all data on the Internet equally, not charging or discriminating differentially by user, site, content, platform or application. The site savetheinternet.org had ready answers to the TRAI consultation paper on OTT and more than nine lakh emails were sent to TRAI in support of net neutrality through this website. There was widespread promotion of this campaign, and increasingly there was more pressure on companies like Airtel and Facebook to drop their programs. And soon, Flipkart the most visible potential partner in the Airtel Zero campaign pulled out of this endeavour citing its support to the issue of net neutrality which heavily dented Airtel’s plan of launching the Airtel Zero program. There were reports of Gopal Vittal, CEO, Airtel South Asia, sending emails to various companies, application providers explaining how Airtel Zero did not violate net neutrality but to avail as the program had to be nearly shelved.

FAST FORWARD – FREE BASICS AND THE TRAI RULING Facebook, similar to Airtel Zero had launched a program called internet.org which was also caught in the criticism that Airtel faced. Hence, it was repackaged and was later launched and marketed as Free Basics. According to Free Basics website: “Free Basics by Facebook provides people with access to useful services on their mobile phones in markets where internet access may be less affordable. The websites are available for free without data charges, and include content on things like news, employment, health, education and local information. By introducing people to the benefits of the internet through these websites, we hope to bring more people online and help improve their lives”. Similar to what Airtel had planned, Free Basics provided free internet access to the applications, website who were partners with Facebook in this campaign. They had tied up with Reliance Communications to provide internet access to the users. It was a partnership between Facebook and six companies namely Samsung, Ericsson, MediaTek, Opera Software, Nokia and Qualcomm. Currently is has been launched in several less developed, low internet penetration countries in the world like Zambia, Tanzania, Ghana, Bangladesh, Pakistan, etc. World over according to Facebook, Free Basics was a program which aims to bring people to the internet who earlier may not be have the knowhow of using the internet or simply do not use because of the costs involved. Facebook said that its aim is to bring these people to the internet in the countries where the internet penetration is low.

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59

And thus according to Facebook, India also fits in this definition of less developed, low penetration of India among the top 10 largest Internet subscriber countries) and consequently it launched Free Basics in India (Exhibit 5.7). In India from day one, the service had faced widespread criticism for violating basic net neutrality as it had been charged with allegations of blocking companies which are not its partners, including its competitors and rivals. It had been labelled as a proxy for Facebook which targets India’s poor in which Facebook is acting as a gatekeeper, monitoring what is allowed and what is not to the subscribers of the service. The launch of Free Basics led to the second round of debate about net neutrality, like the one which happened during the launch of Airtel Zero, this caught the attention of the TRAI, which first floated a paper questionnaire whether such services should be allowed. To support its stand, Facebook launched several campaigns, including the one where it asked its users to send an email to TRAI to show their support to Free Basics. While others like savetheinternet. org, industry body NASSCOM vehemently opposed Free Basics. There were several controversies with Facebook complaining about blockage of its emails, deletion of its responses by TRAI. But in February 2016, TRAI ruled in favour of Net Neutrality and banned differential pricing, which effectively banned services like Free Basics and Airtel Zero in India. “Free Basics is no longer available to people in India” —Facebook Press Release on 11 February 2016

The TRAI Ruling and Airtel The TRAI regulation, which comes into immediate effect, had an impact that goes beyond services like Facebook’s Free Basics and Bharti Airtel’s Airtel Zero. It barred mobile operators to offer any data service for which tariff varies on the basis of either website, application or type of content being accessed.

Impact on Wynk Airtel had launched a music, movie streaming app called Wynk, which offered unlimited streaming of music to Android users at Rs 99 and Apple users at Rs 120. However, Bharti users got this subscription waived if they use the company’s 3G or 4G services. Also, the premium version of the app that came with a subscription fee of Rs 129 a month and offered 500 songs free from any download charges was only offered to Airtel customers. While users of other mobile operators were allowed to download the app and use it, they were not subjected to the free usage or downloads offered to Airtel users. Thus according to the latest TRAI ruling, this differentiation was not permitted anymore and all of such offers and schemes should be voided once the current subscription period ended which can be six months at the maximum. Although the latest ruling stated that such free services were permitted if the service was not freely available across the net and was in the form of closed network application, available only to Airtel users. For example: if Wynk became Airtel’s only application, then all applied offers were permitted.

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Impact on Airtel Zero The latest TRAI ruling bars the differential tariff operation to subscribers of Airtel Zero for the internet content in the current form and thus it cannot function as it is. Apart from that, according to reports, the platform was lying dormant for the last one year with no subscribers or partners due to the initial criticism it faced. “Airtel Zero was not marketed well. Airtel Zero is a good initiative. However, I think they marketed it completely wrong. It is a very great idea about how people can purchase data. It was not breaking net neutrality laws because telecoms were not deciding, it was supposed to be an open platform where anybody can come and buy data”. —Kavin Bharti Mittal, the day after the TRAI ruling, which banned Airtel Zero Though the current TRAI ruling still leaves the provision for providing free internet by the Telecom providers, but it states that it is permitted as long as the free internet provided does not discriminate on what content it can be used for or only if the free internet offered is used for closed ended service of the particular telecom i.e., in a nutshell operators can offer free data to consumers with no strings attached. Differential tariff can be offered on intranet, so if an operator buys movies and gives it free to its customers, it is fine. Also differential services can be offered during the times of emergencies. But any kind of differentiation in terms of content, application or across service providers is prohibited and invites a penalty of Rs 50 lakhs, i.e., anything available on internet cannot have any kind of differential pricing, thus Facebook Free Basics, Airtel Zero or any other similar service is not permitted in the current form.

QUESTIONS FOR DISCUSSION 1. What are the structural challenges in Telecom Industry in India? 2. Critically evaluate the idea of Net Neutrality in Indian Context.

EXHIBITS Exhibit 5.1 Airtel’s Operations Across Asia and Africa

Airtel Zero

61

Exhibit 5.2 Number of Wireless Subscribers for Different Operators in India

Exhibit 5.3 Worldwide Subscribers for Airtel for the Last Three Years Particulars Total Customer Base

Units 000s

2013 2,71,227

2014 2,95,948

2015 3,24,368

Mobile Services

000s

2,59,844

2,83,580

3,10,884

Broadband & Telephone Services

000s

3,283

3,356

3,411

(Source: http://www.goldbullioncompany.co.th/wp-content/uploads/2014/01/CS-Daily6.pdf accessed 23 February 2016).

Exhibit 5.4 Key Income Statement Components for Airtel in the Last Three Years Particulars

Units

2013

2014

2015

Revenue

Rs Mn

7,69,045

8,57,461

9,20,394

EBITDA (before exceptional items)

Rs Mn

2,33,340

2,78,430

3,14,517

Cash Profit from Operations before Derivative and Earnings Before Tax

Rs Mn Rs Mn

1,95,643 47,853

2,41,813 78,643

2,85,280 1,07,130

Net Profit

Rs Mn

22,757

27,727

51,835

(Source: http://www.goldbullioncompany.co.th/wp-content/uploads/2014/01/CS-Daily6.pdf (accessed 23 February 2016)).

Exhibit 5.5 The Number of 3G and non-3G Telecom Tower Sites of Airtel in India Rise of 3G/4G 160000 140000 120000 100000 80000 60000 40000 20000 0

Q3¢15

Q4¢15

Q1¢16

Q2¢16

Q3¢20

Non 3G Sites

100982

97796

94840

86947

73924

3G Sites

41850

48825

52886

62447

77555

3G Sites

Non 3G Sites

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Exhibit 5.6 Airtel Revenue Distribution Across Businesses and Countries

Exhibit 5.7 Internet Penetration in Top 10 Largest Internet Subscriber Countries

REFERENCES 1. http://articles.economictimes.indiatimes.com/2016-02-09/news/70480097_1_data-services-net-neutrality-emergency-services (accessed 12 March 2016). 2. http://cablequest.org/index.php/news/regulations-news/item/8381-the-net-neutrality-debate-is-still-on (accessed 13 March 2016). 3. http://www.airtel.in/ (accessed 3 December 2015).

Theme IV Competitive Advantage of Resource and Capability

Case 6. Button Dabao, Truck Bulao Case 7. M&M: Logan and International Expansion

Button Dabao, Truck Bulao

Case Context Moovo was a start-up based company constituted for providing transportation and relocation services to its customers. The business model of Moovo made it possible for the people to book a mini-truck or any other truck according to their suitability by just tapping their Smartphone and getting it delivered right at their doorstep in the least possible time. Moovo was a mini-truck aggregator trying to capture the large and unorganised sector of mini truck service market. It captured requests for rides from the retail customers via app, or phone, or website and then passed on these requests to the drivers available at that point of time. They partnered with truck and mini-truck drivers, and provided them with modern technology for making their bookings via mobile app, call and website. Moovo’s customers were online retailers, e-commerce manufacturers, e-commerce retailers, e-commerce relocation market, e-commerce companies and any company dealing with bulky items movement in the city. They had a high retention rate of customers. Convenience during booking, and guaranteed on-time delivery of vehicle, which were major issues in the market acted as the key USPs of Moovo. INTRODUCTION The logistics industry was very much fragmented and unorganised in India. There were many small players, having single driver owners, available in the market. However, there was a huge gap of proper supply to meet the demand of the time. Driven by the growth in the manufacturing, retail, FMCG and e-commerce sectors, the Indian logistics industry was expected to grow at a rate of 12.17 per cent by 2020. Abhishek Anand and Anjani Kumar, alumnus of IIT BHU and IIT KGP, respectively saw the unorganised logistics market as a big opportunity and tried to explore it. It was again a new venture which was seeded in college days. The experiment was held to earn some pocket money. Mr. Anjani Kumar, one of the co-founder members, bought a truck with the intentions to run a side business. The idea execution was not easy, he soon realised that most of the time his truck was standing idle and he is wasting his money. He learnt his first lesson in the logistic industry; the revenue can be generated by leveraging either by size or reach. He thought of leveraging first on size by increasing the number of trucks. Rather than investing more on buying new trucks, he tried to bring all small scale truck owners together and connect with

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market through technology. So that the demand could meet supply and everyone in the value chain could make profit. Abhishek and Anjani were partners in a transportation business in their college. With a network of three carriers they used to provide logistics services. At this stage industry was suffering from lot of problems. The truck owners/drivers were suffering from less income due to inconsistency in number of bookings available daily, thus forcing drivers to charge more per trip. Customers had to go through lot of problems to find a driver as the market was scattered hence there was no standard rates that were being followed. Furthermore, carriage vehicles could operate between 11 am and 5 pm only which added another constraint on finding trucks on time. One major problem was rude behaviour of drivers which Anjani and Abhishek tried to counter in their start-up by providing specific training aimed at improving interpersonal skills of the drivers. Bossy attitude of Union leaders who cut excess commission from drivers’ salary was another problem which was an underlying reason for driver’s bad attitude and high salaries. Moovo had its customer base in the form of people looking to move from one location to other or small and medium business enterprises who wanted to move their goods. They also offered warehouse movement, construction material movement as well as custom delivery according to the customer preferences. Anjani and Abhishek after finding their segment and target tried to position their start-up as a service provider which will eliminate above mentioned problems in the industry by providing a platform where users can book a truck in the Delhi-NCR region from the Moovo app, website and call center. Moovo started to increase fleet of trucks with verified drivers. The service target was to send the fleet in half an hour after the request has been generated. Each service is targeted to solve a particular problem in the industry like customer grievances, finding drivers and easy access. The Moovo’s business model aimed to build a network of drivers and to get them minimum number of bookings daily so that they charged subsidised rates to customers. Currently, Moovo has more than 250 driver partners on their platform. The current annual value of transaction was more than Rs 2 crores and the venture was growing at a rate of 100% month-by-month. Their model was based on to build a network of drivers, get them minimum number of bookings daily so that they charged subsidised rates to customers, building trust with them by providing them with extra money in case they were not able to provide them with minimum number of trips daily. They aimed to achieve a self-sustaining models after this wherein drivers will get bookings daily and they will pay commission to Moovo for the bookings. They aimed to achieve it by focusing on low carriage vehicles which were owned by an individual to remove the bossy middle men who cuts in their share from payments of drivers. They were using technology to match orders to drivers thus saving fuel cost and time of drivers and getting him minimum number of trips daily. Moovo followed the Cash Burn Model. They were in initial stage wherein they invested funds collected through seed funding to build trust with both the drivers and the customers.

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The model aimed to build a network of drivers and to get them minimum number of bookings daily so that they charged subsidised rates to customers. They also wanted to build trust with the drivers by providing them with extra money in case they were not able to provide them with minimum number of trips daily. They aimed to achieve a self-sustaining model wherein drivers got their bookings daily and hence paid commission to Moovo for the bookings. Moovo had more than 250 driver partners on their platform. They were also focusing on interpersonal skills of the drivers and providing specific training to improve the communication with the customers. Moovo’s business model was based on commissions provided by both the parties—the client who required the service and driver who got business from Moovo. The percentage was decided by considering the competition and profit factors. Moovo was growing with a rate of 100% on each month and transacting around INR 2 crores annually. Moovo focused on low carriage vehicles which were owned by an individual to remove the bossy middle men who cut in their share from payments of drivers. They were using technology to match orders to drivers thus saving fuel cost and time of drivers and getting them minimum number of trips daily. If they were able to get 2.5 trips daily to each driver then their model would have reached break-even.

AREAS OF BUSINESS Moovo used technology to connect mini-truck drivers and users and provided an easy and efficient service of freight. The company aggregated mini-trucks such as Tata Ace, Mahindra Champion, Tata 407, Eicher 14 feet, 17 feet and 19 feet trucks. Moovo ensured less idle time for drivers by making large customer base available to them. This boosted their income. With standardised and economical price clarity, customers avoided haggle with drivers for the rates. Moovo provided a wide range of services to its customers which included relocation; furniture and home appliances movement; moving goods in and out of warehouse; custom delivery; construction material; moving any other stuffs. Services provided by Moovo were subject to the following conditions: 1. Tolls and extra fares as applicable were to be paid by the customers. 2. Moovo was not liable to its customers for any damages, claims or costs whatsoever including any consequential, indirect, incidental damages. 3. Moovo was also not liable for any loss or damages, including any injury which customer may suffer as a result of customer’s journey in the vehicles hired through the services. 4. Once someone had booked a ride, the customers and the hired vehicle owners were responsible for the dealings between them.

KEY COMPETITORS In Delhi-NCR ‘The Porter’ was the closest competitor of Moovo in terms of services and fare charges. Founded in August 2014 by Vikas Choudhary from IIT Kanpur and Uttam Digga and

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Pranav Goel from IIT Kharagpur, The Porter was an online logistics marketplace. Porter had raised a Series-A funding of INR 35 crores from Sequoia, Kae-Capital and other investors. They had partnered with three strategic angel investors to guide them for next phase of growth. Their customers included brick and mortar stores, furniture and electronics stores, FMCG companies, grocery stores and e-commerce players. Within a year of operation, the company had also built a portfolio of customers which included the likes of Godrej, Reliance, ITC, Urban Ladder, Delhivery and Aramex. The business model of The Porter and Moovo was very much similar in terms of services offered and core competencies. The customers could book a truck using any of the three mediums, i.e. website, android application or call centre. While Moovo was still in a developing stage so entire team was the one who managed the bookings on calls. Both start-ups offered real time tracking to customers using Global Positioning Service. The pricing strategy of both the companies was pre-specified on their website according to the vehicle booked. Exhibit 6.1 illustrates the price comparison of common fleet between Moovo and its competitors. Moovo was trying really hard to reduce base fare as much as possible by using optimisation techniques to match orders, thus reducing idle time and getting maximum orders from drivers. Both Moovo and The Porter offered client specific customisation to cater to needs of customers in a cost-effective manner. While Moovo additionally focused on on-demand logistics, The Porter helped reduce fare by using vehicles for branding as an extra source of income. The Porter promised pick-up within 60 minutes whereas Moovo promised pick-up within 30 minutes. Key areas where they overlap and hence come closest in terms of competition were as follows: 1. Go-Hathi: Another NCR-based tempo/truck aggregator provided services for transporting appliances, furniture, construction material and goods. It lacked behind the other aggregators in terms of support of funding from Venture Capitalists. (Exhibit 6.2) 2. Lets Transport: A last mile techno-logistics solution provider for intracity deliveries, Lets Transport was based in Bangalore and was described as a reliable, affordable, and professional service structured to serve businesses as well as consumers. The venture aimed at revolutionising intracity logistics, thereby allowing businesses and consumers to experience seamless logistic solutions at the click of a button. LetsTransport.in made the smart move of acquiring another new player in the industry, Shifter, a Bangalorebased mini-truck procurement service available online or on call, within just five months of establishment. (Exhibits 6.3 and 6.4) 3. Agarwal Movers and Packers: They were also one of the most trustworthy packing and moving companies in India that had been gleaming worldwide with vast experience of nearly three decades.

INDUSTRY OVERVIEW Relocation industry was believed to be a $2 to $5 billion industry in India. Following were the reasons for relocation industry boom in India:

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1. Floating population: A steep rise in moving population in India led to increased demand for relocation. For example, in NCR people did not settle permanently. They migrated to this place and frequently changed their houses because of change in their jobs and earning parity. This was evident with the rise in movers and packers firms which provided expert service in relocation rather than people doing it themselves. 2. Easy to set up: Setting up a relocation business in India was not a tough task. Tools and technologies were easily available and some of the task could even be outsourced. 3. Required minimal investment: It was an inexpensive business so investment requirements were very less. Cheap labour was available from villages and a small office setup was also lesser expensive with basic or standard facilities. 4. Short training cycle: As the industry did not require any specialised skills; resources could be trained in lesser time. This enabled the company to market itself quickly. Residential relocation accounted for over 90% of business for major Packer & Mover companies whereas the industrial goods relocation came next. The inter-city relocation was around 30% and remaining 70% was within the same city. Major challenges faced by the industry were as follows: 1. Due to rising operating costs like diesel price, vehicle maintenance, packaging cost and staff salary, the profit margins were declining. 2. Other firms, which were unorganised in market, were conducting business unprofessionally thus had negatively affected the impression of the customers. Lack of rules had facilitated individual firms’ rules in P&M market. Few players only cared regarding the quality of their service. 3. The market was very volatile. For one customer, there were ten firms offering the same service. Most local players started their own business, but ended up soon.

QUESTIONS FOR DISCUSSION 1. Does Moovo have a successful corporate level strategy? Does Moovo add value to the businesses within its portfolio? 2. Analyze the external environment and the industry in which Moovo is operating. 3. As a CEO of Moovo, what are the specific steps that you will take to sustain the competitive advantage gained? 4. What are the Moovo distinctive resources? What are the challenges faced by Moovo in the coming 5 years?

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EXHIBITS Exhibit 6.1 Fares Charged by Moovo Vehicle

Capacity (kg)

Base Fare

After 3 (per km)

Waiting charges (per minute)

Transit Charges (per minute)

Rs 12

Rs 2

Rs 2

EECO

500

Rs 250

Champion

700

Rs 250

Rs 12

Rs 2

Rs 2

Tata Ace

750

Rs 300

Rs 12/km

Rs 2

Rs 2

Tata 407

2500

Rs 600

Rs 25

Rs 4

Rs 4

14 Feet

3000

Rs 750

Rs 25

Rs 4

Rs 4

17 Feet

4500

Rs 800

Rs 25

Rs 4

Rs 4

19 Feet

7500

Rs 1000

Rs 25

Rs 4

Rs 4

(Source: Produced by authors)

Exhibit 6.2 Services Comparison

SERVICES

Moovo

The Porter

Lets Transport

Go-Hathi

Relocation

Relocation

Business Solutions

Appliances

Furniture and Home Appliances

Construction Supplies

House Shifting

Furniture

Outstation trips within Karnataka

Goods

Moving Goods in and out of Perishable Supplies warehouses Custom Delivery

Event Management Supplies

Construction Material

Simply any logistic needs

Construction Material

Looking to move something else (Source: Produced by authors)

Exhibit 6.3 Fares Charged by The Porter in Delhi Vehicle

Base Fare

Free Waiting Minutes

Waiting charge per minute

Ride Time Charge (per minute)

Hard Copy of Acknowledgement

Night Holding Charges

EEOC

Rs 200

Free for 60 Minutes

Rs 2.00

Rs 2

Rs 50

Rs 800

Champion/Ace

Rs 250

Free for 60 Minutes

Rs 2.00

Rs 2

Rs 50

Rs 800

Pick up/Dost/ Super Ace/8ft

Rs 300

Free for 60 Minutes

Rs 2.00

Rs 2

Rs 50

Rs 800

Tata 407-14 ft

Rs 700

Free for 120 Minutes

Rs 4.00

Rs 4

Rs 50

Rs 1500

(Source: Produced by authors)

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Exhibit 6.4 Funding Comparison Company

Funding Partners

Funding Amounts

Moovo

YouWeCan Ventures

Amount not disclosed

The Porter

Kae Capital

Rs 3 crores, Rs 35 crores (Series A)

Lets Transport

Rebright Partners

Rs 8.3 crores

Go-Hathi

NA

No funding received till date

(Source: Produced by authors)

Exhibit 6.5 Current Cities of Operation Company

Cities

Moovo

Delhi-NCR

The Porter

Mumbai, Delhi-NCR, Bangalore, Hyderabad, Chennai

Lets Transport

Bangalore

Go-Hathi

Delhi-NCR

(Source: Produced by authors)

REFERENCES 1. 2. 3. 4. 5. 6. 7.

http://www.agarwalpackers.com/why-agarwal-packers.html (accessed 15August 2015). http://www.chainmedia.com/ (accessed 6 August 2015). http://www.gohathi.com/ (accessed 6 September 2014). http://letstransport.in/ (accessed 6 June 2015). http://www.moovo.com/en.html (accessed 23 September 2015). http://www.moovo.in/ (accessed 6 September 2014). https://www.hackerearth.com/theporter-hiring-challenge-15/ (accessed 6 September 2015).

M&M: Logan and International Expansion

Case Context In the summer of 2005 Mahindra and Renault, SA announced that they would be entering into a joint venture to produce and market the French automobile manufacturer’s widely successful Logan in the Indian market. However, by the time 2010 rolled around, things seemed to have soured between the once in love Mahindra and Renault, SA and this led to a premature end to their joint venture. In this case we explore by Mahindra and Renault, SA entered into this joint venture, what were their reasons for ending the joint venture, relations between the two companies now and where they stand today. INTRODUCTION Mahindra & Mahindra was a part of the Mahindra Group that described itself as a federation of companies that was divided into 10 business sectors. Mahindra and Mahindra was the flagship company of this group and operated its automotive business. The group started its operations in 1945 with the Willy’s Jeep – India’s very first utility vehicle – and this laid the future for Mahindra & Mahindra which was known as one of India’s premier utility vehicle companies. However, the journey had not been all smooth sailing. When Pawan Goenka returned in 1993 to manage Mahindra & Mahindra’s automotive division his exact thoughts were “Oh God, what have I done?” Goenka was returning from a long stint with General Motors in the United States and while he did not expect Mahindra & Mahindra to have the same level of R&D as General Motors, he was still taken aback by what he found. Goenka then embarked on a long journey to transform this business which now accounts for over two-thirds of the total revenue of the Mahindra Group. Mahindra’s automotive division was already facing adverse market condition since 1990 and the liberalisation of India in 1991 spelt further bad news for Mahindra & Mahindra who then only manufactured jeeps and pick-up trucks. The opening of the market to foreign players meant that M&M’s competition in the segment had increased many folds overnight. A considered decision to enter the SUV segment was taken with a view to become a global force in the SUV market. For this purpose, M&M embarked on the first of its many joint ventures and it chose Ford as its first partner. The intention of Mahindra in this joint venture was plain – it did not have the technical knowledge that was needed to manufacture anything other than jeeps and pick-up trucks and it planned to gain this from Ford.

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73

FORD MAHINDRA INDIA LTD (FMIL) AND SCORPIO The joint venture with Ford Motor Company USA was with a view to bring Ford’s fleet of passenger vehicle to India. Ford had an unsuccessful stint in India previously that ended in 1954. This time it sought the help of an Indian company to navigate India’s labyrinth corporate landscape. Both companies put forward Rs 160 crores each as equity and set about manufacturing Ford Escort for the Indian market. Mahindra brought market knowledge and distribution to the table while Ford brought with its all the car making expertise. Three years later, the venture found itself strapped for cash. At that time Mahindra had two options – to pump in more money in Ford Mahindra India Limited or to spend its resources developing the Scorpio. It chose to do the latter and in 1998, Ford increased its stake in the company to 72%. Through the life of the joint venture, which lasted 10 years, Ford saw total sales of 1,20,000 units whereas after the venture Ford’s independent operation saw sales of 1,00,000 units in 2011 alone. Mahindra gained much more in comparison as it launched the Scorpio – its flagship SUV. Scorpio was wildly successful not just in India but in several other countries including Nepal, Bangladesh, Chile, Brazil, Colombia, Australia, France, Russia, South Africa and many others. The model was so successful that since its launch, it had come out with 3 other variants. Savvy product placement such as in the movie Singham had ensured its lasting popularity in the country. This set the stage for Mahindra’s further expansion in the passenger vehicle segment.

THE JOURNEY AFTER SCORPIO The Scorpio gave Mahindra a platform to expand in the SUV market with offerings such as Xlyo, TUV, XUV and KUV. But way back in 2005, Mahindra wanted to capitalise on its success with Scorpio by releasing an offering in the sedan market as well. For this, Mahindra went the joint-venture route once again with Renault, SA although this time it did not prove to be as successful.

RENAULT, SA Renault was a French automobile manufacturer that was born in 1898 when Louis Renault paraded the Lepic on Montmartre in Paris. His audience was so impressed that he was able to book 12 orders on that very evening. The company then evolved by developing its own engines in early 1900s. Sales only grew and found great popularity with the government and the military. Renault expanded to producing ambulances, air craft engines and shells to support the French government in their war efforts. Its lineup of vehicles were also constantly increasing and added to the prosperity of the company. But in 1936, its luck ran out. The company was greatly affected by the financial crisis, selling its foundry and aircraft engine divisions. It continued to be riddled by deteriorating labour relations as well as the pressures of World War II. All this eventually led to the company being nationalised. However, Renault saw a post-war

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resurgence and other than being marred by the occasional lead period, has been going strong ever since, being privatised once more in 1996.

LOGAN MAGIC In 1999, Renault took over Dacia – a Romanian car brand – and it was this subsidiary of Renault that gave birth to the car at the root of this story, i.e., the wide body Logan. The idea for Logan came to Louis Schweitzer during a visit to Russia when he saw that antiquated models priced at 6,000 were selling well while the newer models priced at 12,000 were not contributing that much to sales. He decided that nothing was going to stop Renault from producing a good, modern car at an affordable price of 5,000. Logan, or Project X90 as it was called, took 4 years to develop. Features were rationalised to keep the cost down and the Logan was finally ready to be sold in 2004. The car was a runaway success as it filled a space in the market for a low cost, no frills car. Since its inception, the Logan was meant to be a car for the emerging markets of Eastern Europe, North Africa and Turkey but growing demand in Western Europe signalled by unofficial imports of the Logan into France forced Renault to start selling it there as well. It was true – Logan was a world-car. Logan continued to grow in popularity in Romania, Russia, Turkey and other parts of Eastern and Western Europe, taking the total of the countries in which it was sold to 39 by the end of 2005. Logan fit in well with Renault’s international strategy as a vehicle well suited for its impending Asia expansion as well.

INDIA CALLING Such unparalleled success led top bosses at Renault to look for newer markets for its low cost wonder car. India was shortlisted as a possibility although Tata Motors was seen as a threat by the company because of their offering Tata Indigo. Despite this, a survey by Renault indicated that 31% of Indian car owners were familiar with Renault because of Formula 1. This only strengthened Renault’s image in the country and bolstered Renault’s India ambition. After opening up of the Indian automotive sector, western giants such as General Motors, Ford, Toyota and Daewoo had made a great headway in the country while Renault was more than a decade too late. Carlos Ghosn, then and present CEO of Renault, sought to close this gap by entering into joint ventures with a number of Indian companies of which Mahindra & Mahindra was one.

MAHINDRA–RENAULT JOINT VENTURE Mahindra and Renault were not strangers to one another even before they entered into a joint venture. The two star-crossed businesses had been collaborating on Mahindra’s dream project Scorpio in which Renault had agreed to share its engine expertise by supplying its petrol engines. So when Renault looked at the Indian market for its hit product Logan, it looked towards Mahindra & Mahindra. So in March, 2005 top bosses of M&M and Renault met in

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75

Bombay to sign the agreement according to which M&M would have a stake of 51% in the resulting joint-venture while Renault would hold 49%. Mahindra sought to understand best manufacturing practices from Renault by learning from the Renault Production Way while Renault leveraged Mahindra’s supplier base and dealer network. An INR 550 crore manufacturing plant was set up at Nashik to begin the production of a Logan in order to start selling it in the Indian market by 2007. The capacity of the plant was 50,000 units. The establishment of the plant was in line with the motive of the two companies to build a long-term strategic partnership for the Indian market. The Memorandum of Understanding [MoU] signed between the two companies in November 2006 dictated that depending on the success of the Logan – taken as a fact by both companies – more offerings by Renault would be introduced to the Indian market starting from 2009. The launch of Logan was met with a lot of fanfare in India and things seemed to be proceeding well for both parties. Mahindra’s ads with the slogan ‘The New Wide Body Logan!’ had made it a familiar name in India. Logan was in the top three in its segment, reaching 15% market penetration within the first 6 months itself. The positive response to the launch led to Renault signing an MoU with the Tamil Nadu Government to set up a second production plant in India jointly with Mahindra, Nissan and Renault itself. This was also done with a few to manufacture more components in India to exploit its low cost advantage. The unit was to support Renault and Nissan facilities around the globe. Renault, along with Nissan, met with Bajaj Auto officials to explore the possibility of creating a low cost car for the Indian market. Despite the initial success of Logan, Renault seemed to be in no mood to be exclusive with Mahindra & Mahindra.

TROUBLE IN PARADISE Come 2008, things seemed to be first great and then all of a sudden bleak for all automakers with the onset of the global financial crisis. Slowdowns were felt in new markets of India, Brazil, Russia and China. Average growth fell from 25% to 18% in the latter half of 2008. Renault stayed its focus on these markets because of the immense growth potential. India still remained a priority with its unprecedented market potential since it currently had only 50 cars per thousand individuals. The opportunities for expansion were too great to ignore. Logan’s ranking slipped to sixth in its segment. There were a number of reasons attributed to this which are as follows: 1. A rationalisation of the Indian tax structure in 2006 classified vehicles more than 4 metres in the 22% tax bracket while vehicles less than that faced a reduced tariff of 8-10%. The Logan which was marginally more than 4 metres faced the brunt of this change. Cars like Tata Indigo that had undergone changes in product design and were able to fulfil the requirement enjoyed reduced tariff. This made Logan uncompetitive in its own segment as its price was higher than those of its competitors. 2. Importing engines and some other components from France added to cost which only added to Logan’s high cost woes.

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3. Renault underestimated the competition in India in this segment with offerings such as Tata Indigo, Ford Ikon, Maruti Suzuki Swift Dzire, Hyundai Accent among others. 4. Its boxy, basic designs made its looks appear dated to Indian consumers who had jazzier products at their disposal with snappier looks. 5. Its success with taxi companies dented its image as it was seen as a taxi car. The car, which was expected to sell 50,000 units a year, failed miserably to meet expectations. Even after cutting targets to 2,500 units per month for the financial year 2008-09, actual sales were more like 500 units a month. It was official – Mahindra-Renault Logan was a flop in India. The same car that was seeing tremendous growth in all other regions it was launched in saw only a 10% growth in India. Compare this to a 500% growth in Iran and Renault’s disappointment would not seem unjustified. The relationship between the two companies soured. Another reason for this was Mahindra walking out on the Chennai plant. This is what might have prompted CEO Carlos Ghosn to remark at the Tokyo Motor Show “The Company wouldn’t be surprised if it lost at least one of its three partners in India”. Disagreements about production and extent of localisation had already been causing tensions between the partners. Add to that the tepid sales of Logan and the two companies took the call to restructure their joint venture. The Nashik plant as well as Logan passed on to Mahindra & Mahindra wherein it would be sold under a brand name owned by Mahindra called Verito. Renault would continue to support them in their efforts but would now be free to focus on their partnership with Bajaj as well as focussing on their Chennai plant. Renault announced that it would be launching Fluence and Koleos in India while deciding which other models would suit the Indian market. Micra had already started production in the Alliance plant at Chennai from where it would be exported to more than 100 countries.

MAHINDRA & MAHINDRA (M&M) IN SOUTH AFRICA AND OTHER AFRICAN COUNTRIES The presence of M&M in Africa dates back from 1970’s when it first started exporting vehicles to Nigeria and other African countries. Mahindra sold nearly 3300 units globally in the 70’s out of which major chunk was in the African countries. Some of the African Countries where M&M is present are Kenya, Nigeria, Mozambique, Egypt, Ethiopia, Namibia and South Africa. Out of all these African countries only Egypt and South Africa had the sizeable middle class market needed by M&M to develop overtime. Mahindra have six assembly parts globally one was in Egypt as the joint agreement between the M&M India and the contract manufacturing vendor in Egypt. M&M exported components to Egypt for assembly of vehicles intended either for local sales or export. Nearly 200 vehicles were being assembled per month for M&M in Egypt through this agreement. But of the African countries M&M had major presence in the South Africa.

M&M in South Africa As a part of the M&M global strategic growth South Africa was the biggest and the most important export market in Africa. Mahindra wanted to launch a Sports Utility Vehicle (SUV)

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and an SUV on a new platform especially for the African market. Both these goals pushed Mahindra to launch its own manufacturing facility in South Africa. Mahindra has seen good growth since its inception in South Africa in 2004. The company has sold more than 30,000 vehicles till date. With dealership in all nine provinces of South Africa, the company facilitates sales, service and spare parts. Besides serving the South African market, Mahindra also exports to Zimbabwe, Zambia, Swaziland and Namibia.

South African Automotive Market The South African Automotive Industry contributes 7.5% of its total GDP although the total automotive production of South Africa is less than 1% of the global automotive production. As like the whole world the Global Recession of 2007-2008 also hit the South African automotive industry bad. The automotive sales fell by 5.1% in 2007, 21.1% in 2008 and 25.9% in 2009 according to the National Association of the Automotive Manufacturers of South Africa (NAAMSA). However, the automotive industry saw a turnaround in 2010 when the industry grew 24% over the previous year and the growth was expected to be sustainable. Seeing this growth production of 1.2 million vehicles were targeted by the government by 2020. South African Automotive Industry provided three main competitive advantages to the foreign automotive companies: competitive tooling costs, facilities for automotive research, design, testing & training and better manufacturing facilities. According to the business environment rankings, South Africa fared better than the other African countries from 2006 to 2010 and was expected to fare better till 2015 (Exhbit 7.1). The vehicles from South Africa were exported to the countries like Japan, UK, USA, Australia and African countries like Algeria, Zimbabwe, Zambia and Nigeria.

Mahindra Tractors in Africa Around approximately 60% of Africa’s labour force was involved in agriculture and contributed around 17% of Africa’s gross domestic product. In the recent past, there had been more emphasis on agriculture and as a result there was an increase in the sales of tractors which was key to a farmer. Mahindra saw an opportunity in this scenario and had been in the forefront of providing an efficient range of tractors to these farmers. Mahindra tractors were assembled in five countries across the continent. Mahindra’s vision was to provide ‘Farm-Tech Prosperity’ in Africa by staying close to the customers and having products specific to market requirement.

POLICIES FOR AUTOMOTIVE INDUSTRY IN SOUTH AFRICA Governments Motor Industry Development Program (MIDP) 1995 which phased till 2012 and the Automotive Production and Development Program (APDP) 2013 had been the major growth catalysts for the automotive industry in South Africa. The government reduced the import duty on the completely built units (CBU) and the completely knocked down units (CKD) from 115% and 80% to 25% on CBU and 20% on

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CKD in 2012 as a part of the MIDP and APDP programs, which was a great boost for the automotive industry in South Africa. MIDP enabled automotive manufacturers in South Africa to import dutyfree goods to the extent to which it matched the value of the vehicle to be exported. On the other hand APDP comprised four major elements: tariffs, low assembly allowance, production incentives and automotive investment allowance. These allowances helped in long term sustainability and allowed manufacturers to set up plants with capacity of 50,000 units per annum. All these rebates were available in the form of certificates for companies like M&M in the open market which could be purchased when the prices were low. There were however three conditions which needed to be met to acquire these certificates: the company must be registered with the Department of Trade and Industry of South Africa, it should have a manufacturing facility capable of producing 50,000 units per year and it must export to add value to South Africa.

MARKET SEGMENTATION The automotive industry in South Africa was divided into six categories: passenger cars, light commercial vehicles, medium commercial vehicles, heavy commercial vehicles, extra heavy commercial vehicles and buses. Whereas in India there were mainly two categories passenger (cars, multipurpose and utility vehicles) and commercial vehicles (both light and heavy). However M&M divided its vehicles in its own defined categories, farmers, urban dwellers, flee towners, small businesses, mining companies, government establishments and provider of services (Exhibit 7.2).

CUSTOMER CLASSIFICATION South Africa had population of more than 50 million with nearly 80% comprising the Black Africans. The population was mainly divided on the living standards than colour for the automotive industry. The higher income white Africans were more like the Europeans and prefer well-known brands because they trust those brands. On the other hand black Africans despite of their income level were also inclined to western and foreign brands not because they are well known but because they do not trust local brands. This provided a good market for the companies like M&M which could target this 80% of the black population plus the low income white population.

M&M ENTRY IN SOUTH AFRICA M&M had been exporting its vehicles to South Africa since 2004. It started its subsidiary M&M (SA) with 51% stake and 49% with the local partner. It had also tied with the local

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79

logistics company for its distribution purposes. In 2009, it bought its stake from the local partner and gained 100% ownership of M&M (SA). By 2005 M&M (SA) started importing its well-known SUV brands ‘Scorpio’ and ‘Bolero’. It started selling these two brands in South Africa. Later they started importing two other brands ‘Xylo’ and ‘Thar’ also to South Africa. M&M used a twofold strategy in South Africa. First they did not target the mass segment and identified the niche M1 (four wheeler passenger vehicles) and N1 (pickup trucks and cargo delivery vehicles). Second they provided value for proposition by offering its known brands like Bolero at 20 to 30% less than competitors in the same segment. Scorpio and Bolero were instant hits farming and small business segments and did well in semi-urban and rural areas.

ISSUES BEFORE M&M IN SOUTH AFRICA M&M (SA) wanted to start an assembly plant in South Africa as it will improve margins by at least 25%. M&M (SA) could not acquire the assembly manufacturing certification as it was only importing CBU. Currently, they have assembly unit only in Egypt. One of the problems with manufacturing in South Africa was to sustain high production levels just to break even because the gross margins in automobile industry fluctuate with the production volume and to have high volumes first M&M (SA) has to establish itself in South Africa.

MAHINDRA EUROPE & MAHINDRA AUSTRALIA By 2004, Mahindra & Mahindra had successfully expanded into North American, African (including South Africa) and Indian sub-continent geographies. Following were the key driving factors that necessitated the entry of Mahindra in the European and Australian subcontinent.

SUCCESS OF BOLERO AND SCORPIO IN DOMESTIC MARKET The successful launch of Scorpio and Bolero in domestic market boosted the confidence of the company to look at international waters to test these SUVs. As a result, Mahindra aggressively started looking for partnerships overseas.

ESTABLISHMENT OF MAHINDRA SOUTH AFRICA JV In 2004, Mahindra had successfully formulated a JV to enter South Africa. Their initial research showed market potential for Scorpio and Bolero Pik Up. Consequently, both the launches were successful, laying the roadmap in other countries.

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DEDICATED INDUSTRIAL CORRIDOR FOR AUTOMOBILE EXPORTING COMPANIES In mid-2000, the Indian government had planned to set-up dedicated corridors for automobile exporting companies. The first was a dedicated rail corridor between Gurgaon and Mumbai port, between Pune/Mumbai/JNPT and Kolkata/Jamshedpur. Second was developing highway for automobile movement between Gurgaon and Delhi. Third, was establishing road-port connectivity. Furthermore, the government had approved setting up of five SEZs for automobiles and automobile component manufacturing. This further bolstered the confidence of automobile exporting companies in India to expand their geographical reach.

FAVOURABLE EUROPEAN MARKETS Major economic countries of Europe – Italy, France, Spain and Germany were among the top global economies of the world and provided favorable, yet competitive business environment. In these countries the import policies favored companies that had competitive advantages in sectors like automobile, renewable energy, tourism, safety, airport and ground equipment and pet products. At the backdrop of above mentioned factors, the automotive team of Mahindra was now contemplating serious expansion into other major international geographies, where they could launch Scorpio and Bolero and simultaneously also achieve economies of scale. Their research showed potential of these SUVs in European markets – specifically Italy, France and Spain. In 2005, they formed Mahindra and Mahindra Europe with head office in Italy. It was 80% JV that included rights for import and distribution of SUVs in Italy, France and Spain. They launched Mahindra Goa (Scorpio branded as Goa as to avoid confusion with Ford Scorpio) and Bolero Pik Up. The initial success helped Mahindra to rapidly penetrate into the European countries coupled with new product launches. In 2006, they launched Scorpio Pik Up followed by Mahindra Thar in 2009. Their focus was to develop and fully harness their distribution network in Europe, while providing top quality SUVs in the Euro 18,000 to Euro 25,000 segment. As of today they offered XUV 500 m-Hawk and Goa Pik Up (S.C and D.C) for following European markets – Italy, France, Greece, Hungary, Bulgaria, Serbia, Bosnia and Herzegovina, Croatia, Slovakia, Spain, Macedonia and Albania. With growing demand for environment conscious products including automobiles, Mahindra Europe was planning to start the distribution of Mahindra Reva in 2016.

MAHINDRA AUSTRALIA With successful entry into European markets in 2005 and under the backdrop of the favorable conditions for automobile export in India, Mahindra decided to further bolster its international presence.

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One of the Top Performing Economies in OECD As per Euromonitor report in 2006, Australia has been one of the top performing OECD nations between 1990 and 2005 where they registered an average real GDP growth of 3.2% per year. FDI inflows contributed strongly to their average GDP growth between 1990 and 2005 at 1.8% of GDP.

Ease of Doing Business As per world bank’s ease of doing business in Asia and Pacific region, Australia ranked 8th in the year 2008. The duration to start a new business was only 2 days, the number of documents required to export/import were 5/6 and the corporate tax was decreased to 30%. All these were also coupled with government’s commitment to invest in infrastructure.

Agriculture and Related Industry’s Share in GDP Agriculture, along with related industry, contributes 12% to Australia’s GDP. Over the years, there had been significant changes in the Australian agriculture industry with consolidation in farmland, focus on technology and innovation and productivity. Therefore, the use of tractors, complementary products and utility vehicles provided business opportunities in Australia.

Replicating Business Model Mahindra could also replicate its business model by importing SUV and Pik Up from home market as in the case of Mahindra Europe and also set-up assembly facility for tractors in Australia. With strong international focus, Mahindra & Mahindra formed JV with TMI Pacific with 80% stake named Mahindra Automotive Asia (MAA). This strategic partnership helped Mahindra to strengthen its import and distribution capabilities in Australia. Currently, Mahindra Australia offers XUV 500 m-hawk in SUV segment and Scorpio and Bolero in Pik Up segment similar to European markets, additionally it also provides wide array of tractors to the Australian markets.

MAHINDRA IN NORTH AMERICA Introduction Mahindra USA was established in the year 1994 in Tomball, Texas as a wholly owned subsidiary of Mahindra and Mahindra. Since its humble beginning, Mahindra had gone on to become one of the leading tractor brands in the United States. The growth was attributed to Mahindra’s focus on customer satisfaction and customer loyalty. In the year 2003, Mahindra set up its second assembly and distribution centre in the East Coast followed by a third in the year 2005 in the West Coast (Exhibit 7.3). Presently, Mahindra had its distribution and assembly centres in Texas, California, Tennessee, Kansas and Pennsylvania.

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Looking at its success in the tractor industry, Mahindra decided to venture into the pickup truck and passenger vehicle category in the year 2004. It was around the same time that Mahindra was making inroads in the same segment in Australia, South Africa and Europe. It was natural progression for Mahindra to look beyond tractors, which was doing well in the American market. Besides, the success of its passenger vehicles in India gave Mahindra the confidence that it could compete in the global front. But, Mahindra found it difficult to execute its strategy in this domain due to a variety of reasons, which have been discussed in the following sections of this case. Mahindra was yet to find a substantial foothold in this category in the United States but this had not deterred them to plan ahead for the future.

AUTOMOTIVE INDUSTRY IN THE UNITED STATES Automotive Industry in the United States was one of the largest markets in the world. Some of the major automakers had their presence in the American market. Some of the major brands included Toyota, Nissan, Hyundai, BMW, Mercedes, Mitsubishi, Ford, General Motors, etc. The automotive industry accounted for almost 3% of the gross domestic product of the United States. The automakers exported more than $637 billion in vehicles and parts as of 2015. The automotive industry was also one of the largest investors in Research and Development. Besides the sales of auto products, the size of the auto industry in the United States meant that it was one of largest provider of jobs in the United States. Mahindra and Mahindra was one of the major players when it came to tractor sector in the United States. About 50% of the market volume in this sector belonged to tractors below 40 hp. While demand for this “semi-professional” segment reduced between 2009 and 2011 due to the global financial crisis, the past two years had seen sales exceeding 100,000 (Exhibit 7.4). John Deere and Kubota had been major players but Mahindra was able to compete with these players by following a unique approach of providing luxury in the tractors. This was widely accepted by the “semi-professional” segment which played a key role in the success of Mahindra tractors. Mahindra was ranked at number 4 as far as volume sales of tractors was concerned behind John Deere, Kubota and New Holland. Mahindra was not able to recreate its success in the tractor sector, pickup and passenger vehicle segment. This was attributed to a number of reasons which included, stringent environmental and safety standards, competition with established brands and absence of an established distribution network.

MAHINDRA TRACTORS AND UTILITY VEHICLES Mahindra’s foray into the US market was backed by the idea of replicating its success of Indian market in the US market. Mahindra was successful in launching its tractors in the US market

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83

as it did not directly compete with the major established players on the price front. Mahindra instead chose to cater to the luxury needs of the tractor users by bringing in changes in its products which would appeal to its users. In 1994, Mahindra, through a market research, found that there was an increase in number of people who moved towards farming as a profession. These people were just starting to adopt farming and hence were called “semi-professionals” or “gentlemen farmers”. These farmers preferred to use tractors of lower horse power but found that their demand was not being met by any of the major players in the market. Mahindra saw this opportunity and decided that they would cater to this segment of the market and thereby avoided confrontation with the established players. Mahindra also concentrated on providing complementary products to the tractors in the form of backhoes, snow blowers, loaders, among others. Mahindra utility vehicles was primarily used for hauling and towing purpose.

SUCCESS STORIES AND STRATEGIES Mahindra tractors were considered to be a success story which gave close competition to John Deere in the US market. One of the main reasons for this was the company’s decision to modify its products to suit the local needs. The American buyers prefered more luxury in their products and to cater to their needs, Mahindra came up with auto-transmission, airconditioning, cruise control and sun roofs in its US models. In the United States, Mahindra stick to selling tractors with up to 100 hp and not directly compete with its competitors at the higher range. These tractors were targeted at the people who had recently taken up farming (or baby boomers or gentlemen farmers as they were called). With an increase in semi-professional farmers, Mahindra decided to cater to this segment of the market instead of directly competing with the established players like John Deere and Kubota. Mahindra did not fight its competitors in the price front but rather used strategies like providing long term warranties and convenient financing options for its buyers. Being an Indian brand, Mahindra took a conscious decision to appear less foreign. Mahindra sponsored local championship bull riding and had also signed up a prominent TV host, Bill Dance, as its spokesperson. Mahindra also invested on promotion through heartland cable networks so as to reach the local audience. The company also rolled out a military appreciation program by providing war veterans with rebates. To reach the heartland customers, Mahindra organised sales events which would attract buyers. Special schemes were in offer like loyalty discounts and financing programs. In addition, the buyers were also given discounts on select models for certain financing options.

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ISSUES AND FAILURES Despite being successful with tractors, Mahindra faced considerable challenges when they decided to launch pickup trucks in the US market. This was not the first time that a company faced a challenge when it decided to launch a product in a mature market like that of the United States. United States was a country with stringent emissions and safety standards besides the difference in the standards compared to that in Europe where Mahindra had a foothold. Mahindra had obtained the EPA (Environmental Protection Agency) certification for its diesel engine in 2010 for the 2011 model year. But, Mahindra had not obtained the necessary certificate for the subsequent years which meant they would have to incur costs to obtain one. This proved to be a hurdle in the plans that Mahindra had envisioned. Another hurdle for Mahindra came in the form of dealership network. Mahindra had to recruit distributors and dealers to execute their logistic requirements. Mahindra decided to employ, General Vehicles, a US-based agency to help recruit these dealers. Dealers were asked to invest a sum for bringing Mahindra’s trucks up to US emissions and safety standards. In 2010, the deal fell apart as Mahindra could not launch the vehicles on time. The dealers were not happy with the delay in the launch as they had invested heavily in this initiative of Mahindra with no business to show for. This resulted in a legal battle with Mahindra which also affected its position and image in the US market. Even though Mahindra was a renowned brand in India, it did not carry the same weight in the US market. Hence, Mahindra had to ensure its brand visibility which was not an easy task in a mature market. Besides, Mahindra’s legal battles did not augur well for its brand image.

MAHINDRA RELAUNCH Mahindra had not given up on the US market yet as they took initiatives to launch its passenger vehicles in the US market. Mahindra set up 2 facilities in Michigan—one dedicated to research and development and the other for building scooters and e-bikes under the brand name GenZe. The company was yet to decide if they would be importing the vehicles or be building it on-site. Another strategic decision that Mahindra was contemplating was the branding of the rides, i.e., whether they would come under Mahindra marquee or its subsidiary, South Korea’s Ssangyong.

QUESTIONS FOR DISCUSSION 1. Analyze the industry attractiveness analysis for automobile industry. 2. Conduct an analysis of strength, weaknesses, opportunities and threats of Logan. 3. Identify the critical success factors and thus the competitive advantages of Mahindra and Mahindra Ltd. 4. Why the joint venture with Renault was terminated? Critically analyze the factors.

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M&M: Logan and International Expansion

EXHIBITS Exhibit 7.1 South Africa: Automobile Market at a glance – January 2016 Total Market THIS MONTH MONTH

VS LAST MONTH

VS LAST YEAR

JAN 2016

Dec 2015

JAN 2015

VOL

% DIF

PAS

34936

33012

1924

5.8

37208

–2272

–6.9

LCV

12074

13706

–1632

–11.9

13164

–1090

–8.0

MCV

531

936

–404

–43.3

629

–98

–10.5

HCV

304

512

–208

–40.6

317

–13

–2.5

XHV

715

901

–186

–20.6

823

–108

–12.0

BUS

55

100

–45

–45.0

87

–32

–32.0

48615

49167

–552

–1.1

52228

–3613

–7.3

TOTALS

VOL

YEAR TO DATE

VS LAST YEAR

2016

2015

VOL

PAS

34936

37208

LCV

12074

MCV

% DIF

FULL YEAR

PREVIOUS

% DIF

2015

2014

VOL

% DIF

–2272

–6.1

412670

438942

26272

–6.0

13164

–1090

–8.3

174544

173758

765

0.5

531

629

–98

–15.6

10458

11024

–566

-5.1

HCV

304

317

–13

–4.1

5593

5441

152

2.8

XHV

715

823

108

–13.12

13365

13840

–475

–3.4

BUS

55

87

–32

–36.8

1119

1253

–134

–10.7

48615

52228

–3613

–6.9

617749

644259

–26510

–4.1

ANNUAL

TOTALS

(LCV: Light Commercial Vehicle, MCV: Medium Commercial Vehicle, HCV: Heavy Commercial Vehicle, XHV: Extra Heavy Vehicles)

1681

42

818

GMSA/SUZU TRUCKS

GWMSA

HONDA

5

82

JMC

MAHINDRA

2.9

1030

2151

205

1290

98

MAZDA SOUTHERN AFRICA

MERCEDES-BENZ SA

MITSUBISHI MOTORS SA

NISSAN

PCSA

0.3

3.7

0.6

6.2

0.0

-

0.2

0.0

1.6

-

2.3

0.1

4.8

MASERATI SOUTH AFRICA 4

MAN

542

JAGUAR LAND ROVER

IVECO

4035

FMC

11.5

0.1

36

FIAT GROUP

0.9 -

323

CHRYSLERSA

5.0

-

10.3

%

FAW TRUCKS

1756

3592

BMW GROUP

BABCOCK

AMH & AAD

Passenger

4

2326

6

11

71

236

35

59

109

1601

2462

31

440

Light

0.0

19.3

0.0

0.1

0.6

-

-

2.0

0.3

0.5

-

-

0.9

13.3

20.4

0.3

-

-

-

-

3.6

%

4

0

135

20

53

58

27

7

0

18

Medium

Exhibit 7.2 Percentage Penetration by Different Manufacturers

0.8

-

-

25.4

-

-

-

-

3.8

-

10.0

-

-

10.9

51

13

-

-

-

-

3.4

%

35

4

4

72

42

0

Heavy

-

-

-

11.5

-

-

1.3

-

-

-

1.3

-

-

23.7

-

-

13.8

-

-

-

-

%

249

66

43

25

14

20

Extra Heavy

Bus > 8500 kg

-

-

-

34.8 14

-

-

9.2 18

-

-

-

6.0 12

-

-

3.5 0

-

-

2.0

-

-

2.8

-

%

-

-

-

25.5

-

-

32.7

-

-

-

21.8

-

-

-

-

-

-

-

-

-

-

%

106

3616

211

2595

1101

4

88

318

60

601

112

818

151

3437

6524

74

56

323

1756

20

4050

Total

0.2

7.4

0.4

5.3

2.3

0.0

0.2

0.7

0.1

1.2

0.2

1.7

0.3

7.1

13.4

0.2

0.1

0.7

3.6

0.0

8.3

%

86 Cases in Strategic Management

6543

TOYOTA

VOLKSWAGEN GROUP SA 8225

34936

71.9

-

0.6

0.3

12074

434

4162

74

0

13

24.8

-

-

3.6

34.5

0.6

-

-

-

-

0.1

-

-

531

0

55

107

47

1.1

-

-

10.4

20.2

8.9

-

-

-

-

-

-

-

304

46

44

57

0

0.6

15.1

-

-

14.5

18.8

-

-

-

-

-

-

-

(Source: National Association of Automobile manufacturers of South Africa www.naamsa.co.za/flash/market.html)

Total

VOLVO GROUP SOUTHERN AFRICA

201

23.5

97

TATA

VOLVO CARS

18.7

555

SUZUKI AUTO

1.6

0.2

63

SUBARU

-

4.0

-

0.5

0.0

1367

164

SCUDERIA SOUTH AFRICA 11

SCANIA

RENAULT

POWERSTAR

PORSCHE

715

174

32

6

57

29

1.5 55

24.3 2

-

-

4.5

0.8 5

-

-

-

8.0 4

-

4.1

-

0.1

2.6

-

-

-

9.1

-

-

-

7.3

-

-

-

0.5

0.4

17.9

22.4

0.6

1.1

0.1

0.0

0.1

2.9

0.1

0.3

48615 100.0

222

201

8714

10888

286

555

63

11

61

1400

29

164

M&M: Logan and International Expansion

87

88

Cases in Strategic Management

Exhibit 7.3 Mahindra Timeline Year

Milestones

1945

Birth of M&M

1963

JV with International Harvester to manufacture tractors

1981

100,00th tractor rolled out

1983

Becomes best-selling tractor in India

1994

Entry into US

2003

Worldwide tractor sale of 1,00,000

2005

Increase in popularity & 3rd Assembly set-up in US

2007

Awarded the coveted Japan Quality model

2009

Distribution center set-up in Tennessee, US

2010

Becomes no. 1 selling tractor in the world

2011

Formation of North American HQ

2012

Largest tractor selling company in the world

(Source: http://mahindrausa.com/why-mahindra)

Exhibit 7.4 Sales of New Tractors 2010

2011

2012

2013

2014

22.834

24.117

25.449

27.542

28.144

2

164.894

168.013

185.333

201.851

208.274

3

Brazil

56.420

52.296

55.810

65.089

55.537

–15

Japan (> 22 kW)

16.363

17.222

19.001

24.721

20.944

–15

China (> 18 kW)

320.000

367.000

416.000

524.500

524.600

0

Korea (> 22 kW)

15.280

14.291

13.471

12.853

12.000

–7

520.073

612.687

529.956

619.159

592.942

–4

Russian Federation

21.085

36.997

41.827

40.158

37.500

–7

Turkey

36.072

60.466

50.320

52.285

58.500

12

European Union

167.517

187.352

184.255

184.335

169.500

–8

Of which France

29.123

35.409

38.754

42.656

33.127

–22

Of which Germany

28.587

35.977

36.264

36.248

34.611

–5

Of which Italy

23.323

23.431

19.343

19.018

18.178

–4

Of which United Kingdom

14.486

15.217

14.964

13.490

13.526

0

1,700.000

1,900.000

1,950.000

2,200.000

2,130.000

–3

Canada United States

India

World

(Source: Agrievolution Tractor Market Report)

%

M&M: Logan and International Expansion

89

REFERENCES 1. “http://archive.indianexpress.com/news/renault-exits-mahindra-jv/607367/”. 2. “http://articles.economictimes.indiatimes.com/2012-09-06/news/33649779_1_mahindra-tractorsmahindra-usa-indian-tractor”. 3. “http://arunkottolli.blogspot.in/2006/12/joint-ventures-is-preferred-way-to.html”. 4. “http://automotiveproductsfinder.com/APFCONTENT/coverstory/mahindra-renault-launches-logan. php”. 5. “http://cstl-hcb.semo.edu/wredmond/nibs/Mahindra-SouthAfrica-case.pdf”. 6. “http://dealbook.nytimes.com/2006/11/09/renault-and-mahindra-team-for-indian-car-factory/”. 7. “http://economictimes.indiatimes.com/mahindra-&-mahindra-ltd/infocompanyhistory/companyid11898.cms”. 8. “http://forbesindia.com/article/boardroom/how-mahindra-mahindra-came-to-dominate-the-indianautomotive-industry/39141/0”. 9. “http://forbesindia.com/blog/business-strategy/why-mahindras-pick-up-truck-foray-in-the-us-failed/”. 10. “http://indiatoday.intoday.in/story/indian-auto-industry-what-to-expect-in-2005-as-new-models-rollout/1/194338.html”. 11. “http://mahindra.com.au/about/”. 12. “http://mahindrausa.com/sites/default/files/22001%20MAH5405%208pg%20Corp%20Bro%20 060315.pdf”. 13. “http://profit.ndtv.com/news/corporates/article-joint-venture-no-thanks-say-automakers-302028”. 14. “http://selectusa.commerce.gov/industry-snapshots/automotive-industry-united-states.html”. 15. “http://www.africanfarming.net/technology/machinery-equipment/mahindra-tractors-enables-rise-offarmers-in-africa”. 16. “http://www.agrievolution.com/PDF/2014-Agrievolution-Tractor-Market-Report.pdf”. 17. “http://www.autonews.com/article/20050307/SUB/503070806/renault-mahindra-form-joint-venture-tobuild-logan”. 18. “http://www.business-standard.com/article/companies/what-went-wrong-with-logan-109111000042_1. html”. 19. “http://www.business-standard.com/company/m-m-365/information/company-history”. 20. “http://www.businesstoday.in/magazine/cover-story/anand-mahindra-mandm-company-acquisitions/ story/18656.html”. 21. “http://www.dnaindia.com/money/report-mahindra-mahindra-ford-left-unescorted-1482162”. 22. “http://www.eiu.com”. 23. “http://www.france24.com/en/20100416-renault-ends-indian-car-alliance-mahindra-logan”. 24. “http://www.ft.com/cms/s/0/f5fec412-4973-11df-9060-00144feab49a.html#axzz42CVabWP7”. 25. “http://www.iloveindia.com/cars/ford/”. 26. “http://www.iol.co.za/business/news/mahindra-gears-up-for-car-assembly-operations-1482873”. 27. “http://www.mahindra.com/mobility”. 28. “http://www.mahindra.com/news-room/press-release/1294042409”. 29. “http://www.mahindra.com/news-room/press-release/1294232577”. 30. “http://www.mahindra.com/news-room/press-release/1294310568”. 31. “http://www.mahindra.it/media-center/global-press-release”. 32. “http://www.mahindraautoworld.org/en/who-we-are/international-business”.

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33. “http://www.mahindraeurope.com/”. 34. “http://www.naamsa.co.za”. 35. “http://www.nytimes.com/1995/08/19/business/company-news-joint-venture-with-mahindra-of-indiais-planned.html”. 36. “http://www.rediff.com/business/slide-show/slide-show-1-special-why-mahindra-lost-all-its-joint-venture-partners/20130108.htm#4”. 37. “http://www.team-bhp.com/forum/indian-car-scene/67941-renault-can-break-ties-any-partner-includingm-m-mahindra.html”. 38. “http://www.thehindubusinessline.com/todays-paper/mahindra-ties-up-with-renault-joint-venture-tomake-logan-cars-in-india/article2169628.ece”. 39. “http://www.ukessays.com/essays/management/why-renault-entered-into-joint-venture-with-mahindramanagement-essay.php”. 40. “http://zeenews.india.com/home/mahindra-renault-expand-scope-of-jv-to-set-up-mfg-plant_334547. html”. 41. “https://en.wikipedia.org/wiki/Ford_India_Private_Limited”. 42. “https://en.wikipedia.org/wiki/Mahindra_%26_Mahindra”. 43. “https://en.wikipedia.org/wiki/Mahindra_Group”. 44. “https://en.wikipedia.org/wiki/Mahindra_Renault_Limited”. 45. “https://en.wikipedia.org/wiki/Mahindra_Scorpio”. 46. “https://en.wikipedia.org/wiki/Renault”. 47. “https://group.renault.com/en/”. 48. “https://group.renault.com/wp-content/uploads/2014/07/renault_-_2007_annual_report.pdf”. 49. “https://group.renault.com/wp-content/uploads/2014/07/renault_-_2006_annual_report.pdf”. 50. “https://group.renault.com/wp-content/uploads/2014/07/renault_-_2009_annual_report.pdf”. 51. “https://group.renault.com/wp-content/uploads/2014/07/renault_-_2010_annual_report.pdf”. 52. “https://group.renault.com/wp-content/uploads/2014/07/renault_-_2005_annual_report.pdf”. 53. “https://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/transformationautomotive-industry.pdf”.

Theme V Cost Leadership

Case 8. Micromax: Leveraging Scales

Micromax: Leveraging Scales Case Context The last decade saw a significant growth in the mobile market. It was the medium budget segment that attracted most with 1.5 times growth rate in the period. This growth was attributed to the entry of domestic players in the market which was predominantly captured by global companies like Microsoft, Samsung, Sony, Apple, etc. The entry of players like Micromax and Karbonn made the industry more competitive, offering a price range that was well suited for Indian market. In Q2 of 2014, Micromax overtook Samsung in the overall sales of handsets, whereas, Karbonn outshined the Nokia market in India. With the entry of Canvas, sales of Micromax in the Smartphone segment was sharply progressing lagging just behind Samsung. INTRODUCTION Ten hours into the release of the phone, the company’s website showed the “SOLD OUT” sign. On 14 February 2013, Micromax unveiled its crown jewel, the Micromax A116 Canvas HD. The timing of the release was very carefully thought out. Although the company announced that the phone will be out by the first week of February. However, Micromax seemed to have missed the deadline and had to postpone it by another week. There were multiple theories behind this delay. The main reason was that in a market where delays such as this usually hamper a company, benefited Micromax in more ways than one. 14 February, the valentine’s day during which gifting was rampant, was an interesting choice by Micromax to launch the phone. With a price tag under Rs 15000, Micromax took advantage of the fact that the A116 could be a gift (albeit a bit lavish). Another relevance of the day of the release was that the Micromax A116 Canvas HD was launched a day before the Samsung Galaxy Grand. This shifted all the limelight away from the Galaxy Grand. According to a survey made by NDTV, when asked by the users to rate the two phones, Micromax A116 Canvas HD and the Samsung Galaxy Grand, and pick one based only on the specifications alone, the Micromax handset won comfortably. The Canvas HD raised the bar significantly from its predecessor the Canvas 2 A110. It boasted of a higher definition screen and a more powerful quad-core CPU and in a price range which was not offered by any other handset maker in the market. On comparing the Canvas HD with its closest rival the Samsung Galaxy Grand customers saw that the A116 launched with the 4.1 Jelly Bean operating system right out of the box. This not only put it ahead of the competition with other phones in its

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Cases in Strategic Management

price range, but also ahead of some other high-end handsets. The 5 inch HD display was fitted with a 720p IPS display, which gave the same pixel count as the first Galaxy Note and much more than what the Grand had to offer. And the biggest factor where Micromax gained the market was that the Canvas HD was priced at Rs 13990, high for a Micromax product. The Galaxy Grand having almost similar specifications was priced at Rs 21500. No matter how much anyone tried and nit-picked, it was a proven fact that the Canvas HD was the best Android smartphone at the time. It was really tough to beat even by the market leader Samsung. Some of the strong points that worked in its favor included the HD IPS display, quad-core CPU and Jelly Bean support. On top, a carefully thought out marketing strategy and a perfect launch date provided it the push to be one of the most successful products of Micromax till date.

DESIGN THINKING AT MICROMAX Micromax pioneered the level playing field for the technology by their innovative and affordable product offerings in the past decade. The barrier for large-scale adoption of advanced technologies was further removed. Micromax celebrated the vibrancies of life and empowerment and was a brand which was close to the heart of the youth. The budget friendly price range was an instant connect with the youngsters as they also had a very up end design and style. The products of Micromax had an impact and was positioned as an extension of the Indian youth’s lifestyle and dynamism. Micromax was first in presenting many features to the customers which comprised the 30-day battery backup, dual-sim standby handsets, QWERTY keypads, universal remote control, first quad-core budget smart phone, etc. The design thinking of the first product of Micromax came from as simple a thing as a truck. Rahul Sharma, CEO of Micromax, saw an Airtel PCO being powered by a truck battery in a village named Behrampur in West Bengal. The PCO owner inspired Sharma about Micromax’s first product. The company went ahead and designed a 30-days lasting battery on a single charge. The X1i, priced at Rs 2249, was instantly popular in rural India. In 1999, Nokia had signed Micromax as an all-India distributor for machine-to-machine mobile devices used by call centres and PCOs. But in 2004, Nokia decided to exit the segment posing a threat to Micromax. Then came the mobile revolution and Micromax jumped on the bandwagon. Micromax stressed on innovation for the price-conscious users. Micromax sourced its handsets from 12 Chinese, South Korean and Taiwanese factories. This model was beneficial as compared to the model of Nokia which was compelled to source and stay in-house or got to a vendor-partner, even if another vendor had better capabilities.

Beyond Fashion “Wow what a phone” – This was the first reaction for almost all ladies who saw Micromax mobile Bling Q55. The Micromax Bling Q55 was a unique, one of kind and trend setting phone. The phone came in white and was in limited edition Black with studded elements of Sarwoski. The build quality and the design of the phone was all made to attract the target customers – women!

Micromax: Leveraging Scales

95

The phone was fitted with a vanity mirror at the back side for ladies especially. It provided value for money since the cost was less than Rs 5000 for the consumers. Micromax kept coming up with beautifully designed phones. Initially criticised for copying the styles of leading mobile brands such as Samsung, Micromax was then coming up with better and elegant designs for their new products. They started manufacturing in India which gave them more freedom to exercise their creative control. As they moved further into the future they raised the expectations from the customers to deliver phones with both better specifications and design. And by the help of its looks, Micromax was certainly taking up the challenge very well.

CULTURE OF INNOVATION “We have never sold our phones on price, jaise ki nau hazaar rupae mei yeh yeh milega… never [for instance, you won’t get this that for Rs 9,000]. We have always sold our phones on imagery, we have highlighted the design and the technology we are offering. We want to be seen as cool, in-your-face and edgy. That is why we are associated with sports and music. Why should consumers pay Rs 30,000 or more for phones when Micromax is offering them more value on a similar product?” —Rahul Sharma, CEO Micromax Informatics Limited Micromax worked passionately to achieve a customer centric position in market with the CEO’s desire to lead the growth curve by constant innovation and thus make Micromax the most loved mobile technology firm in India. Supervised by Rahul’s leadership, Micromax Informatics Limited achieved the target of a billion dollar company in FY 2013–14. Micromax had more than 70 models as their brand’s product portfolio, ranging from, data cards, dual SIM phones, 3G Android smartphones, tablets and LED televisions. The company looked at adopting a diversified product range with an aim of having customers using Micromax smart LEDs, connected to Micromax smartphones over Micromax data-cards. It was thus the Midas touch of the CEO that brought unparalleled increase in revenue inflows for the company. Rahul thus challenged the old school’s thought that innovation comes with a price, by introducing low-cost high technology products. Within 5 years of existence, Micromax was the best seller of smartphone in India and at number 12 globally. Even, it had 18.4% market share in the Indian tablet market and competed with big firms like Samsung and Apple. One of the main reasons of company’s success in providing high quality features at cheaper rates and launching new designs in the market at a higher speed was by leveraging China in managing the above crucial inputs. China offered the labour cost advantage and product flexibility to Micromax. The company’s success strategy was to create high volumes of mobiles, ensure effective distribution, provide innovative products that were cost-efficient and finally create a strong loved brand. Micromax’s growth strategy followed three stages. Initially Micromax picked handsets from China, rebranded them and put them in the Indian market. In next stage, Micromax did an extensive research for the demand in Indian market and developed products around the same. Finally, Micromax followed a mix and match strategy – having

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Cases in Strategic Management

some products made in China and other different countries, source its components from foreign countries and manufacture few newer products in India. Micromax was able to offer their products 40% lower than their global competitors by getting products manufactured in China. Their basic and main strategy was affordable innovation. Micromax was always focused on four critical components of a phone, i.e., screen, camera, chip-set and memory used in device. China offered all the requirements at a very cheaper rate. The country had clearly built scale economies and knew how to leverage it. Regarding designing process, Micromax started its R&D facility, created prototypes and instructed its third-party manufacturers in China on what the company expected. Micromax always put efforts to identify manufacturers in China who worked with global brands. The company dealt with Tier I manufacturers only like Foxconn, BYD. It never put emphasis on Tier II and Tier III manufacturers where quality was not emphasised. Around 500,000 handsets orders were put by Micromax at the entry level from their contract manufacturers in China at one instance. Tier I manufacturers in China typically charged $ 17 more per handset. Micromax worked hard at securing sound and formidable partnerships.

Innovation and Product Development Strategy Micromax innovation and product development cycle was the key to its success in the market. They formed a team of 10 to 12 innovative design engineers who designed the phone. However the manufacturing was contracted to countries like China, Taiwan and Indonesia where the same was cost effective and investment to set up a plant was less. Also few models of mobiles were assembled in Uttar Pradesh and Bihar, which provided a cheap labour for production. Steps involved in successful innovation of micromax

• Find out customer pain (E.g. Long Battery Life Handset). • Budget, scope and payback period of the launch was decided. • Reverse thinking, random idea generation, critical thinking, parallel thinking and many more techniques were adopted. • Focus on market research, which required focus groups discussions and research to see how customer reacts on the idea. • Planning Innovative business model to execute the idea from idea to market. Permanent product development strategy

Micromax provided several features in their handsets that were permanent and did not change. Examples of this include dual sim feature. After the initial development, these features remained for extended periods of time without undergoing significant changes. Temporary product development strategy

In addition to its permanent features offerings, Micromax regularly developed temporary features. The projector enabled handset, for example, was a product that was offered once. Also mobile phone with a universal remote for television was quite a different idea. The purpose of these products development strategy was to give customers something new to experience and to experiment with new features that may become permanent.

Micromax: Leveraging Scales

97

MICROMAX IN THE MARKET “Our multinational competitors offered one or two smartphone models in every successive screen size of 3.5 inch, 4.3 inch, 4.7 inch, 5 inch, etc. It was as though they were checking each [screen size] box with a few models, From Rs 6,000 Canvas Viva to Rs 19,000 Canvas 4, we have put a 5-inch Smartphone next to each of their boxes. We bet the house on 5-inch Smartphones and that market just exploded!” —Rahul Sharma, Co-founder of Micromax The Micromax devise made sense in the Indian market especially at 25 percent of the Note 2’s cost. Within three weeks, Micromax sets were all sold out. This was Micromax’s biggest threat signal to the global giants. Samsung India denied speaking with Forbes India for this story. One of their spokesperson blatantly ridiculed the accuracy of the reports and said that they were more convinced by the GFK-Nielsen’s numbers. He said, “We do not consider Micromax a competitor.” To this Sharma wittily replied, “I think Mahatma Gandhi said it best: ‘First they ignore you, then they ridicule you, then they fight you, and then you win’!” The Indian smartphone market was expected to grow to over 410 million handsets to the period ending December 2014. The growth in the Indian market was driven by replacements rather than new user additions. The three avenues were identified as the key growth granules in the Indian market as Replacement Cycle; 3G/4G business; Value added Services [Exhibit 8.1]. Micromax left no stone unturned as far as bold and balanced marketing was concerned. Its new punch logo was unveiled on 18 March 2012 on the occasion of India vs Pakistan cricket match. Micromax Canvas 4 was directly positioned and compared to Samsung Galaxy S4. Customers were impressed with commercials of Canvas 4 and the launch had a live web feed. In addition the company signed Hugh Jackman,the Hollywood superstar over other Bollywood actors as the brand ambassador. With its brand Mantras like “Nothing like Anything” and “Can Juggle many Lives” for Canvas Turbo, Micromax deserved full credits for commitment. Besides, they also roped Akshay Kumar, the Indian bollywood flamboyant for covering advertisements for its Bolt A67 and Bolt. As already stated, A55 Bling model had also another effective marketing strategy put forward by Micromax studded with Swarovski crystals. Although this was not the first phone in market to focus on women customers, but the phone became a huge hit instantly. Moreover, Micromax understood the Indian market much better than their foreign competitors. The firm focused on rural Indian markets unlike other competitors, by identifying the unmet demand of rural India. The company focused on their needs and built their product strategy around the same. The company was also eyeing the global market given their international standards. The innovation, planning, effective marketing and low cost strategy made Micromax a household name in India which they wanted to leverage across the globe.

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Cases in Strategic Management

COMPETITIVE ADVANTAGE “The Indian mobile phone market is very competitive with more than 150 device manufacturers selling devices to consumers. Most of these manufacturers remain focused on the low-cost feature phone market which still constitutes over 91 percent of overall mobile phone sales, offering a huge market to compete in.” —Anshul Gupta, Principal Research Analyst at Gartner Design, manufacturing and component sourcing were three pillars in handset industry for every firm operating in it. Handset design along with four component categories – integrated circuits, passives, modular component, and plastic parts – and three manufacturing steps namely PCB assembly, box build assembly and testing formed the value chain of the industry. Micromax mastered these steps in India especially where consumers were highly price sensitive. Micromax products were value for money. Micromax was dependent on China and Taiwan to manufacture their handsets because of their stronger supply chain, better infrastructure and cost effective work force. Over this, it had a service factory at Delhi which provided services such as chipset and PCB replacement. It offered toll free telephone numbers for complaint registration. In 2014 Micromax had more than 400 service centres which operated in 250 cities. The firm was looking at increasing its number to a huge value.

Revenue Generator of Micromax Micromax expected to hit $ 1 billion (over Rs 6100 crore) in revenues this fiscal. The company’s revenues were 3168 crore for the financial year 2012–13. It held about 16% market share in Q$ 2013. Some of the top selling models were the entry level smart phones like A35 Bolt and A67.

Products of Micromax Computers and peripheral, routers and modems, data cards, computer accessories, TVS, audio and video, televisions, home theatre systems, mobiles and tablets, mobile phones, tablets, mobile cases and covers, mobile and tablet accessories batteries, clocks, Micromax sold around 2.3 million mobility devices every month with a presence in more than 560 districts through 125000 outlets in India. Also, it launched funbook on 3 April 2012, an android 4.0 ice cream sandwich tablet with 7-inch capacitive display. It launched the Canvas Tab P650 android tablet, the first tablet in the canvas series. It controlled tablet market with a share of 18.4%, ahead of veterans Samsung and Apple. Furthermore, it entered in the television market with the launch of LED TV 24-inch to 55-inch range. It had a production capacity of 2000 LEDs per day.

FUTURE CHALLENGES With already capturing the Indian market Micromax looked at the global markets to place its products. Hong Kong, Bangladesh, Nepal, Sri Lanka, Maldives, UAE, Kingdom of Saudi Arabia, Kuwait, Qatar, Oman, Afghanistan and Brazil started seeing Micromax’s presence which needed to be strengthened over time.

Micromax: Leveraging Scales

99

Once being labelled as a Chinese mobile, it started manufacturing in India, this would improve its brand image and would also reduce the outsourcing delays from China. While answering in an interview the CEO of Micromax, Rahul Sharma said that they have high hopes of the US and European markets. With the largest market share in mobiles along with the technological innovations Micromax landed safe in the future of mobile technology. Though Micromax provided a wide range of products yet the after sales service was one area where Micromax wanted to improve further. They needed to offer a great after-sales support. It was something that prohibited customers from buying Micromax. They really needed to introspect into their after-sales service, which was currently not up to the mark. Also they needed to retain their customers for repeated purchase. The market for their premium products from Canvas series included customers entering for the first time into the smartphone market. A very small share of these customers came again to buy a Micromax mobile. This posed the challenge of losing their customer base. Furthermore, the emergence of other Indian companies into the market posed a threat to Micromax as these companies were slowly moving up the ladder, with Karbon mobiles’ sales in India at the fourth place above Nokia. Finally, Micromax still had a weak brand image in urban areas, which needed to be improved to have monopoly over the mobile market.

QUESTIONS FOR DISCUSSION 1. What are the competitive advantages for Micromax? 2. Analyze the dynamics of industry in which it is operating. Are these dynamics favorable or problematic? 3. As the CEO, solve the Micromax’s long standing problems with respect to the competition 4. Has Micromax found a new formula to create a sustainable competitive advantage?

EXHIBIT Exhibit 8.1 Significant Milestones in Micromax’s History (2008–2014) 2000

Micromax was founded by Rahul Sharma, Vikas Jain, Sumeet Arora and Rajesh Agarwal. They started their business with the sale of hardware parts.

2010

Micromax started manufacturing mobile phones in 2010 with a focus on low pricing, in order to compete with international brands.

2011

Micromax entered the tablet segment with Canvas segment.

2013

Micromax attacking with a new marketing strategy signed Hugh Jackman for the commercial of their Canvas Turbo smartphone.

January, 2014

On 24 January, Micromax became the first Indian company to start its business in Russia.

April, 2014

In April 2014, Micromax started manufacturing mobile phones and tablets at their facility in Rudraprayag, Uttarakhand, earlier they sourced all their mobile phones from China.

July, 2014

Quarter 2, 2014 reports place Micromax ahead of Samsung to become the highest selling handset brand in India.

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REFERENCES 1. http://forbesindia.com/article/boardroom/can-micromax-become-indias-leading-smartphonemaker/36577/1 (accessed 30 April 2014). 2. http://knowstartup.com/2015/08/micromax-the-mobile-revolution/ (accessed 15 September 2015). 3. http://www.micromaxinfo.com/about-us (accessed 20 December 2015). 4. http://www.attittudeblogger.in/search/label/New%20Mobile%20Phones?updated-max=2014-1202T00:57:00%2B05:30&max-results=20&start=3&by-date=false (accessed 27 February 2015). 5. http://www.business-standard.com/article/opinion/lunch-with-bs-rahul-sharma-co-founder-micromax114051601921_1.html (accessed 23 August 2015). 6. http://www.citehr.com/323754-business-innovation-success-path-dell-micromax-your.html (accessed 25 September 2014). 7. http://www.gartner.com/newsroom/id/2194417 (accessed 4 August 2014). 8. http://micromaxcanvas.co.in/micromax-co-founder-rahul-sharma-featured-fortunes-40-under-40/ (accessed 29 November 2014 9. Thomas Philip, J., “Upwardly Mobile: Nothing Micro about Micromax,” retrieved from The Economic Times, 2010.

Theme VI Differentiation

Case 9. On-Demand Logistics: Shipsy

On-Demand Logistics: Shipsy Case Context Shipsy was start-up in its nascent stages, competing in the logistics market. In 2015, India had a huge but yet unexploited potential for logistics industry. The market size for Indian logistics was around $225 billion and was expected to grow up to $350 billion by 2016. Since logistics cost comprise 13% of the total GDP, which was very high as compared to other developed nations, efforts were made by the government to improve the infrastructure and encourage logistics start-ups which had the required expertise to streamline the entire process and cut down the costs. INTRODUCTION Shipsy was a logistics start-up in its very nascent stages. Based in Gurgaon, the company was co-founded in June 2015 by Dhruv Agrawal, Maharshi Devraj and Soham Chokshi. The organisation went with the mission statement of “Shipping Made Easy,” and thus hoped to provide a one-stop convenient solution to all shipping requirements for a wide spectrum of clients. While logistic giants such as FedEx and DHL earned most of their efforts on large corporate clients and e-commerce companies, Shipsy identified a market gap between the retail consumer and courier services, and an opportunity to provide a personalised experience. Hence, the company launched its services to the granular market segment of individual retail customers and small e-commerce vendors. It also diversified into other relevant services such as packers and movers, gifts and online returns in reverse logistics to expand its revenue streams. Their idea was realised through a mobile application interface for smartphones, which customers could easily use to order a free pickup at the tap of a button. The location was picked up automatically, and the pickup boy arrived at the door in less than 2 hours, which was an unparalleled response time. The boy collected parcels from a neighborhood and brought them to Shipsy’s warehouse for packaging. This was another unique service that Shipsy provided to its customers, who did not have to worry about the safe and proper packaging of their parcels. For each parcel, an optimisation algorithm ran to indicate the mode of transportation and courier service that was appropriate for the package, based on cost, time and weight. They were aggregated and periodically collected by the agents of partner companies like FedEx, who delivered it to the final destination in the fastest possible time.

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The mobile app offered another advantage of simple tracking and SMS updates. While the norm was to use a tracking code and log-in to company websites, the mobile app in this case tracked the location and status of the package on that very interface, irrespective of the service provider. Finally, a competitive benefit that Shipsy was able to offer its clients was the low cost of its services. Due to agreements with partner companies, Shipsy obtained discounts on volumes aggregated, and ultimately passed it down to its customers to gain their loyalty and trust. Thus, the company aimed to be the fastest, easiest, most reliable and low-cost solution to all shipping needs.

INDIAN LOGISTICS INDUSTRY The 2015 valuation of Indian Logistics Industry was estimated around US$ 225 billion and was expected to reach around US$350 billion by 2016. The trend showed that this industry will grow at a rate of 15 to 20% over the next decade. There were number of factors which facilitated this sector in India. Moreover, Government of India through ‘Make in India’ initiatives was also proposing to make India a manufacturing hub in SE Asia. If manufacturing sector grow, the logistics sector will grow automatically. Most of the times, manufacturing companies tried to outsource logistic services by the third parties so that they can better concentrate on their major activities. (Refer Exhibit 9.1) Another reason was rapid growth in industries such as automobile, FMCG, retail, E-commerce, pharmaceuticals, etc. According to a report published by CCI, around 64% of the total GDP ran through the road network, i.e. obviously through logistics and 19% by railways network, but there was total monopoly of government in railways so no further expansion was possible. Domestic players in logistic industry were also looking to grab expansion and growth opportunities. Logistics cost was around 13% of the GDP which was considerably high. If we compared these figures with the major economies in the world, for example, European countries accounted for 7.2% of GDP higher logistics cost. So in India, logistics cost was very high because of poor infrastructure in India as compared to Europe. The higher logistics cost represented higher products/services cost in the international market (Refer Exhibit 9.1). In India, there were various government and private companies in the logistics market, few of them were already listed in the stock market.

TRENDS Experiments with Newer Delivery Models The new players like Uber, Google (GOOGL) and Amazon (AMZN) in the logistics industry were trying to experiment innovative ideas to reduce delivery time and cost. For example: Uber had started its courier service, which used the human resources as taxi drivers and bikers from its taxi business for delivering parcels while Amazon was thinking to launch a new app, which could help ordinary people to deliver the packages on their routes to their places. Projects like this would affect startups like Shipsy as the delivery market will become open to general public. Apart from these, other factors that affected the industry were:

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1. Going Green: Consumers became well aware of the environmental issues and they started looking for more environmental friendly sustainable packaging. It was evident from researches that 57% of customers took a look for logos on the products they purchase. Also, more than 50% people were ready to pay extra for environmental friendly packaging. 2. Automated Packaging Machine: With an increase in the number of companies in the domain of e-commerce, logistics, packaging, companies were adopting to automate packaging machines. This would make companies which had manual packaging systems reduce their prices in comparison to the increased competition from cheap automated packaging companies. 3. E-commerce industry: E-commerce industry was one of the important sources for courier and parcel delivery services industry in coming days. The market was growing with a faster pace and the number of players were being added very often. The growth of this sector also created a good business opportunity for international courier service provider players like FedEx (FDX) and UPS. Hence, the competition faced by Shipsy in domestic market was high. E-commerce continued to increase its influence over the supply chain industry. 4. Increased competition and price pressures: The fuel cost was one of the important sources of overall pricing. Fuel cost was an integral part of effective logistics management. The cost of fuels (petrol and diesel) was one of the external factors which were not under the control of companies and they tried hard to overcome the financial variations in operation management because of fuel prices’ variation. Companies also started to locate their warehouses in such places where logistic issues could be minimised. 5. Rapid Industry Growth: The exponential growth in different industries like automobiles, pharmaceuticals, fast moving consumer goods and especially E-commerce had increased the demand of quality logistic services. The movement of products and services moved from one place to other.

GLOBALISATION Due to global integration of economies, Indian global trade increased from $58 billion in 1997–98 to $890 billion by 2012–13. The initiation of trilateral highway connecting between India, Myanmar and Thailand was definitely a trade booster for the economy and logistics industry.

FDI Regulations and Economy of India The Government of India allowed 100% Foreign Direct Investment (FDI) in logistics industry except its own aircrafts. However, the Air Cargo FDI investments limit had increased from 49% to 74% in 2008. India was growing economy with the rate 7% CAGR and expected to be continuing. Logistics and supply chain companies continued their investment in new and innovative technology. The logistics sector grew with the rapid rate and was expected to grow for about 13.5% per annum in the coming decade.

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Opportunity Opportunity lied on the demand logistics service provider in this market, so Shipsy found it as a strong sector to grow up. Shipsy was providing picks, packs and delivery service to independent customers as well as SMEs. It already tied up with 50 firms and was looking forward to 200 plus in near future. Major chunk of Shipsy’s business (around 70 to 80%) came from B2B (SMEs) market. Shipsy did the local delivery on its own fleet of riders and for intercity delivery they tied up with many other courier partners. The three cofounders built an algorithm through which they find the most economical courier service provider for a particular pin code. So far only 5 to 10% of the business came from local delivery rest came from inter-city business. In demand logistics service provider trio (co-founders) found huge opportunity which they were trying to grow. Logistics had still not caught up with the technological advancement. Also people’s mindset was still towards the conventional practices, so this trio found the opportunities in the sector to make it more profitable and attractive for the consumers. It was very difficult for the startup companies to do so because leaders and existing firms had deep pockets, people awareness and infrastructure. The entry of international players in the logistics industry showed the opportunities to increase the operations in the markets and they kept on increasing the size of investment. Shipsy started working with 12 different courier services including FedEx, DHL, Blue Dart and UPS.

PRODUCTS AND SERVICES OF SHIPSY Following were the products and services of Shipsy: 1. E-commerce: Shipsy focused on providing service where the client expected and felt the perceived value was higher than the cost. Shipsy was already tied up with many small enterprises for which they provided the delivery services. 2. Documents: Shipsy sent documents quickly and safely and improved the efficiency of the client team. This was very unique service which Shipsy offered. Document delivery was risky than delivery of goods, so it was more challenging service of Shipsy. 3. International Shipping: Shipsy reached the international clients with the launch of new apps and they could expand their business internationally. Customers could send products beyond the national boundaries. 4. Packers & movers: Shipsy was also providing the services of packers and movers. If customers wanted to move out from one place to another, Shipsy was the right choice to pick, pack and move with just few clicks. 5. Gift: Shipsy provided the service to send gifts to customer’s friends or family members. 6. Online returns: If customer purchased something online and in case they wanted to return the same, Shipsy made that service available.

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COMPETITORS Pigen.in Pigen.in was a Bangalore-based startup of courier service provider. They had the same business model like Shipsy. They picked up the docket from the customer and handover to their logistics partner. They were providing the services only in Bangalore. Technology

They were technically advanced as compare to Shipsy. They were also app based, but technically advanced. Here, the customer needed to just download the app, click on the picture of the docket through the app, the picture will then be sent automatically to Pigen.in and the delivery boy will come at the door step to collect the docket and will later handover to the service providers. While in Shipsy, you had to fill the details through the app and send to the Shipsy and thereafter the delivery boy picked up the dockets. Product wise comparison and cost comparison

Pigen.in offered three categories of products which were: High Flyer, Swift and Bolt. Basically Bolt charged 240 INR (minimum) and this was the premium service of pigen.in. Bolt delivered the dockets within 24 hours, while Swifts delivered the product in 2 to 3 working days and the minimum charges was about 90 INR, and the third product was High Flyer which delivered the dockets in 6 to 7 working days and the delivery charges were as minimum as 50 INR. So pigen.in had a good product line while they were just a start-up, where they could create a problem for Shipsy. But we know this was changing world, new technology and new product evolved every day. Pigen.in operated in Bangalore while Shipsy was present in Gurgaon so both had totally different business pick up locations and they were out of competition but in near future they will operate from the same locations. In terms of cost, Shipsy was cheaper because they sent the docket at a rate as minimum as 49 INR but they did not have product line like pigen.in. Shipsy offered six different type of services in different segments, that were individual customers to small and medium enterprises, while pigen.in did not have any specific product or service except they were just a courier service, customers could send their item from door step to anywhere across the county (up to 10 kg). Shipsy also offered international delivery from doorstep which was not offered by pigen.in (Refer to Exhibit 9.2). Insurance

Shipsy was providing an insurance sum up to 10,000 INR in case the dockets got misplaced and additional 1,000 INR from the courier service partner. Pigen.in also provided the same insurance policy which was a very unique and trustworthy feature in the segment and this put pressure on the competitors. It was a unique feature of customer relationship management and revealed the attitude of customer care. But Shipsy provided an extra sum of 1000 INR from the service providers, which was not included in the pigen.in policy. It was believed that it was not about the money which Shipsy was going to pay the customer while it will act as a guarantee which revealed the commitment of Shipsy towards the dockets because it carried cost and so the business also carried cost.

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Parcelled.in Parcelled.in was a major competitor of Shipsy in terms of size, services and locations as well. Shipsy was operating only in Gurgaon while Parcelled.in was operating in numerous locations i.e Bangalore, Mumbai, Delhi, Pune and Jaipur. Parcelled.in was one step ahead in comparison to Shipsy in terms of business modeling and delivery. Shipsy collected the dockets and handover to its business partners while Parcelled.in picked up and delivered the dockets. They provided the last mile delivery service. Parcelled.in provided the last mile delivery at their end and it can be said Shipsy was one step ahead of Parcelled.in because Shipsy handover the dockets to world leading business partners such as DHL, FedEx, etc. They were undoubtedly the leaders of the markets so customers did not have any doubt in their minds if their parcel will be delivered by these giant service providers or not. But if Parcelled.in was providing the last mile delivery services then the customers could always have the doubt in their mind about their connectivity and logistics infrastructure. Product & service wise comparison

1. International shipping: As such Shipsy provided the international delivery through its various collaborations or partners while Parcelled.in delivered the dockets at their end only, so it could be said that they were providing the services within the country while Shipsy had international presence in the market. 2. Customer support system: Parcelled.in customer support teams were always keen to help the customers with all their queries and support. They tried to reach out to the users on the call, chat or social media page with trust. They were always very enthusiastic to come out with an effective solution for all customer queries, while Shipsy as such did not offer any customer support system. 3. Sunday pick ups: Parcelled.in was committed that they were more than happy to work for customers on Sunday. One can be comfortable to place an order when the customers were actually at home and what could be better than a Sunday. Shipsy was also going to start the Sunday pickups for their operations soon. 4. Cost: In terms of cost, Shipsy was cost effective. Shipsy was delivering a document at INR 49 while Parcelled.in delivered shipment at charges as less as INR 149 from Delhi to Bangalore. Shipsy delivered a docket up to 500 g across the country in just 49 INR. Problems faced by Shipsy

1. Insurance issues: In the course of transportation of package to its destination, if there was a damage caused, Shipsy had a policy of reimbursement upto Rs 10,000. However, traditional courier providers only provided a compensation of Rs 1000. However, claiming this amount was not easy and required completion of many formalities. In case Shipsy started taking external insurance on the delivery of packages, the cost of delivery would increase. Hence, this was an important problem that was faced by Shipsy where it needed to review its operational costs to cushion itself against price shocks conflicted

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if any package damage actually took place. It needed to align itself with industry practice while creating a service differentiation at the same time. 2. Safety and traceability: In the business model of Shipsy, the first step involved delivery boys picking up items to be delivered from customers and dropping them at Shipsy warehouses. The packaging took place at the warehouse, from where the package was delivered to its destination using a courier service. Now, because the items when picked by the delivery boys were not packed, there was a high probability of an item being misplaced. The fact that the package was not intact could only be discovered at the package’s destination. Hence, this was a huge problem faced by Shipsy wherein it needed to ensure that until handing over to courier service provider, the package remained secure. If this was not implemented, then tracing back the fault to either the delivery boy responsible or the courier service provider would become a task for Shipsy and would cause a lot of unnecessary confusion. 3. Parcel identity: Shipsy was a company which was currently in its nascent stages. However, as the number of orders placed would increase, there would be a need for a stricter system in place for identification of individual packages than the traditional ‘mark-a-number’ practice as undertaken. This would be necessary to ensure that no package got lost or replaced with another package. This would also be important in identifying the root cause of any such issue to either the courier service provider or Shipsy employees. Future plan of action for Shipsy

Customer satisfaction and on-time delivery were the two top priorities for any logistics company. Keeping these core competencies intact, Shipsy was contemplating following for their future growth: 1. Expansion to other cities: Currently, Shipsy catered to only Gurgaon-based requests. The company needed to expand to other cities in India. Initially, the manpower and warehouses were Delhi-centric. Hence the best way to increase the network, without much investment, would be to start with nearby states as well. 2. Increasing user base: Shipsy focused on retail customers and small e-commerce vendors. Next target should be to capture the huge e-commerce giants, particularly in Indian markets, where e-commerce was growing at an increasing pace. Shipsy was pondering to go for tie ups with upcoming e-commerce websites. Every day the company processed 150 to 200 orders with an average ticket size of Rs. 200. It aimed to reach 1,000 orders in the next three months, i.e. by December 2015. 3. Setting up of warehouses: As the Shipsy network expanded, it was important to manage the warehouses in accordance with the sales so that the on-time delivery was never compromised at any point of time. An optimal ratio of number of warehouses to the number of pin codes served should be decided and accordingly they should be installed.

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4. Cost reduction: The bottlenecks in the supply chain need to be identified. Cost will also be reduced if the numbers of orders increased, for the same number of delivery people, going by economies of scale. It worked on a margin basis with these courier service providers. 5. Make faster: Shipsy was operational in Gurgaon. It planned to expand to Delhi and Noida by December and hire 30 to 35 riders. They were further trying to reduce fleet up to 15 rides and its pick up time from 120 minutes to 90 minutes. It could make them a better service provider, because companies could not compete on the products, but they actually compete on the basis of customer perceived value. 6. Technological improvements: Since Shipsy heavily relied on its app for taking orders and order tracking, there was a scope for technological improvements in this aspect. At present, it accepted its fee for pickup only through cash. The payment modes could be increased to card payments, net banking, etc. Add on features like gift packing, or buying complementary items could also be included. 7. Marketing strategies: As Shipsy was in its nascent stages, it needed a lot of publicity to compete with the top liners of this industry. Online advertising was one way to improve its visibility. Next option was to tie up with e-commerce websites and mobile wallets like Paytm. Loyalty discounts should be encouraged. One of the USP for Shipsy was free on-door packaging facility. This was to be leveraged out and hence bigger items like furniture, electronics, etc., where packaging was a hassle, should be focused on.

QUESTIONS FOR DISCUSSION 1. What recommendations do you have for the CEO to sustain the competitive advantage that they have gained? 2. Analyse the business model of Shipsy and comment whether or not it makes any sense? 3. What is the business level strategy and competitive advantage for Shipsy?

EXHIBITS Exhibit 9.1 International Spending on Logistics Country USA

Logistics Spending (% of GDP)

Third party Logistics (% of total movement)

9.5

57

Japan

10.5

80

UK

11

68

China

18.6