[chopper builder]

This one is from todays ET...
it's bout the approach,spectacular business success of 3 firm frm 3 different industries....
Great Indian 'break-out growth' trick

In the last decade, three firms from very different industries, all starting with seeming handicap at the back of the pack, became one of the leaders in their industry in remarkably short period of time.

LG’s share in refrigerators rose from 11% to 29% between 2001 and 2005, ICICI Bank’s share in home loans increased from 10% to 32% between 2002 and 2005, and Reliance’s share in wireless telephony subscribers increased from 4% to 20% between 2003 and 2006.

Though not the only examples, these three firms embody a uniquely Indian phenomenon. How did these firms, starting from back of the pack, achieve this astounding ‘break-out growth’ and revolutionise the rules of the game in their industries to create spectacular business success?

Similarities in their approach are striking. All of them made bold bets on the growth of Indian consumer spending, created scale, rapidly gained significant share through aggressive pricing that pushed the market itself to ‘break out’ into the next stage of development and growth.

While cost leadership based on scale is an established strategy, it is typically adopted by players in mature markets, starved for growth, not in high-growth, emerging markets like India where conventional thinking might suggest differentiating enough to gain a share in the high incremental growth.

So while the above achievements are spectacular in themselves, what really distinguishes these players is their counter intuitive approach, which tells us something about winning in India today.

Firstly, boldness of vision and courage to bet on the latent potential of consumer demand. Imagine a conventional business plan to enter Indian market in any industry. Typically, there will be an estimated market size that will be projected into the future prorating the historical growth rate.

There will be discussion on how much market share can one gain over time based on how one is positioned against the key competitors. This will determine the capacity to be created and investments to be made. Not here. The starting point of this approach is not to ask how large the market is but how large can it be made to be with an appropriate ‘intervention’?

Dhirubhai’s, now famous, assessment of opportunity in telecom — how many people will make a phone call if making a phone call was cheap as a post card — embodies the essence of this approach. The approach requires rising above your share and thinking of growing the whole industry.

Secondly, aggressive pricing backed by scale. Between 2001 and 2002, LG dropped the prices of refrigerators from Rs 25,000 per piece to Rs 15,000 per piece. Their market share jumped from 10% to 35% within one year, taking share away from even unorganised sector players.

When most of the players had capacities of in lakhs of units per annum production, LG set up a plant capable of producing a million units per day. When most of the players were planning circle by circle entry into telecom, Reliance planned an all India entry.

The Monsoon Hungama offer increased the net monthly subscriber additions from seven lakh to 18 lakh per month in a matter of few months. The rate of growth of subscribers has only grown exponentially there after reaching 4-5 million subscribers per month today spurred on by further reduction in prices due to competition.

Similarly, between 2001 and 2005, home loan disbursals grew at a CAGR of 40% per annum driven by very aggressive pricing in industry led by ICICI Bank.

Finally, the business model has to be designed to be economically viable. Consider this. Despite the severe price drop and capacity expansion between 2001 and 2004, LG was the only company in consumer durables making profits by 2004.

The entire business model of LG was attuned to strategy of maintaining quality at low prices and high volumes. Compared to the competition, LG had significantly lower trade investments and trade spend.

LG’s larger scale allowed it to have significant cost advantage over competition on variable cost of production. The cost advantage allowed LG to spend aggressively on branding — maximum in the industry — and still have enough margin left to share with customers in form of lowest prices in industry.

In retail lending, ICICI Bank started by offering a service quality that customers associated with foreign banks at prices that were below public sector banking industry. When branch banking was the norm, the bank set up a gigantic distribution network based on direct sales agents that could acquire huge number of customers at the point of sale.

The agents get compensated on the basis of business generated and thus it creates the strong incentives. It is hard to find a banking precedent of this any where in the world. Key products like home loans and auto loans were offered at very low rates to customers — even driving almost every competitor, save a few, out of the business.

Centralised processing of loans and technology — like ATMs, call centre, internet — were used to contain costs while creating scale that is crucial for profitability in retail. Like LG, ICICI Bank also consistently spent the maximum among its peers on advertising to create one of the strongest brands in financial services in a short span on 4-5 years.

Reliance started by asking what should be the scale of operations to support low enough prices required to spur higher penetration and growth in the telephony market? It started by planning for a national roll out, when competitors were cherry picking profitable circles. Large scale of roll out allowed Reliance to negotiate very low investment in network equipment and handsets and triggering a price competition. Rest is now history.

We believe that given India’s stage of economic development and demographics, the scale-driven strategy of “break out growth” is uniquely positioned to succeed. If the declared strategies and plans were to turn out right we may witness similar “break outs” in automotive and modern retailing.

But there are several industries waiting to witness break out growth. How about tourism, hotels, computers, processed foods? Or even more importantly how about in health care, education, and water supply? Any takers?

[manu_pr28]

Nice article.... hats off to BCG people... Just poisting the editorial will not help... i think we should come up with our own contributions....

They have missed Tata's intiative in Hotel Industry by launching budget hotels under the Taj brand name( Taj Ginger -- one of the name) .... this is a bold move i should say since there are chances that Brand dilution can happen ( This is done as per C K Prahalad's strategy).... But one thing i didnt understand or not able to comprehend.... Break Out Growth strategy in water supply, tourism et al is ok.. but what abt Education... Just one situation.... if we have cleared CAT.... We could convert BLACKI... Suddenly one insti is coming and giving an offer of free coaching.... which one will we prefer... so i feel that this strategy is good for tangible goods... because for intangible benefits we have different priorities... But this kind of strategy will def help poor students who wants to get education..

This is open for debate.... I just typed what came to my mind... puys pls pour in your view points....

[jainm]

hey neone still active on this thread??tel me we can start discussion from tomorrow right on

[manu_pr28]

Originally Posted by jainm

hey neone still active on this thread??tel me we can start discussion from tomorrow right on

Thanks buddyy ...
why to postpone things.. why dont we start it right away...

[khushi4406]

Originally Posted by chopper builder

This one is from todays ET...


While cost leadership based on scale is an established strategy, it is typically adopted by players in mature markets, starved for growth, not in high-growth, emerging markets like India where conventional thinking might suggest differentiating enough to gain a share in the high incremental growth.


There will be discussion on how much market share can one gain over time based on how one is positioned against the key competitors. This will determine the capacity to be created and investments to be made. Not here. The starting point of this approach is not to ask how large the market is but how large can it be made to be with an appropriate ‘intervention’?



Similarly, between 2001 and 2005, home loan disbursals grew at a CAGR of 40% per annum driven by very aggressive pricing in industry led by ICICI Bank.

?

hmmm...nice article ...
the above mentioned points were not very clear to me ..
...
what is meant by CAGR??????

[chopper builder]

Originally Posted by khushi4406

hmmm...nice article ...
the above mentioned points were not very clear to me ..
...
what is meant by CAGR??????

CAGR-compound annual growth rate..

[jainm]

hey can neone help me in clearing my fundas of:: (1) what exactly is happening when we say the NSE and BSE giving out their IPOs..............i mean how are these shares going to appreciate or depriciate(depending on what)??..............(This is being discussed in all editorials nowadays) (2) how NAV of mutual funds is calculated??(the exact formula and stuff)

[khushi4406]

well jainm ..i dont hav ne idea abt it ...
but plsss... y has this thread become so inactive ..
c'mon puys ..

[buzzeG]

Originally Posted by jainm

hey can neone help me in clearing my fundas of:: (1) what exactly is happening when we say the NSE and BSE giving out their IPOs..............i mean how are these shares going to appreciate or depriciate(depending on what)??..............(This is being discussed in all editorials nowadays) (2) how NAV of mutual funds is calculated??(the exact formula and stuff)

i think i'll quickly answer these..

The stock exchanges are commercial organizations.. recently there were changes in their organizational structure (demutualizition of the BSE) that allowed their owners, basically other financial institutions and SEBI to treat em as normal and regular companies.. this was done with the intention of value-unlockin tht happens (jus like in the case of an IPO where private cos become multi billion dollar MCap companies overnight) in the NSE's case, the stock exchange was valued at 2b and global players and stock exchanges like GAP, Goldmansachs and NYSE picked up sum stake in it. the shares themselves are gonna appreciate or deprciate basically on their intrinsic value from here on.. that is based on how the nse and bse perform, what their earnings are etc...


copied this from some site, is mostly self explanatory

When and how is Net Asset Value (NAV) computed?
The NAV of the Fund is determined as at the close of business on each trading day. The NAV is calculated in accordance with the following formula:
Net Asset Value = Market Value of Scheme’s investment + Receivables + Accrued Income + Other Assets – Accrued Expenses – Payables – Other Liabilities
--------------------------------------------------------------------------------------
Number of Units Outstanding

[Obsessed_bout_mba]

Hi all,

Count me in ....ve started readin ET daily ..esp its editorials for the past 1 month...mm a novice..but i can contribute my bit in the discussions