Archive for the ‘Business and Management’ Category

While surfing the news over the past couple of months, job-cuts have been catching my eyes.. It’s like an unstoppable Big Bang! The only thing is, nothing’s expanding… It’s all falling apart. Doing an MBA, I sometimes wonder, are all the managers in the world just puppets. Are they all so helpless, that one huge storm (read Sub-prime crisis) can leave huge conglomerates to nothing more than beggars??
I was on such a gr8 vacation at home after my first term at IIM Indore, when my dad handed me the newspaper and showed me the headlines…”Lehman Brothers goes bankrupt”. Who wasn’t reading about the Sub-prime crisis?? Who didn’t know that something like this was right around the corner?? But even then, that news left me shocked to say the least. I mean “LEHMAN BROTHERS” ??!!
I guess that’s old news now. In the hindsight, people now just call Lehman Brothers a foolish company. Those same people who couldn’t stop praising them as if they were god, have become their worst critics. See how the wheel of time can turn you around?
Coming back to why I started writing this post – The economic downturn has left so many people across the globe without jobs. Sudden pink-slips on your office desks are no more a surprise. Just to give you an idea of the gravity of the situation, I’ll quote a few of the figures from recent news articles:

1. Volvo – 6,000 jobs
2. General Motors – 3,600 at least
3. DHL US Express – 9,500 (in addition to reduction of 5,400 positions at the beginning of this year) ; part of their plan to cut operating costs to 770 million from the previous 4.2 billion euros
4. Nokia Siemens Networks – 1,820
5. Morgan Stanley – 19% of its 44,000 staff
6. Goldman Sachs – 3,200 (10%) ; in addition to executives losing their year-end bonuses
7. Sun Microsystems – 6,000 (18%)
8. Ford Motor Co. – 2,600
9. GlaxoSmithKline – 1,000 job-cuts (in addition to doing away with 800 vacancies)
10. Citigroup – 52,000
11. Bank of America – 7,500 and counting
12. American Express – 7,000 (10% of global workforce)
13. RBS (Royal Bank of Scotland) – 3,000
14. Virgin Media (owned by Richard Branson) – 2,200 (15%) by 2012
15. British Telecom – 10,000 jobs by March 09′

There are too many figures, but I’m sure you get the picture. Though the scene looks gloomy for the global Indians, number of job-cuts in the domestic Indian Market have been comparitively less stark. Let’s see what the future holds for us MBAs…


Since the Indian Government opened up the skies to private airlines in 1994, the aviation sector had been steadily showing growth. Up until early 2007, Indian aviation was considered the cherry on the top of our Economic Growth pastry. That was when the scenario began to change and many airlines had to come in for “emergency landing”.
Recent rise in ATF and cutthroat competition has pushed various airlines to the darkest corners of a lonely alley. The industry reported a total loss of Rs 40 billion in 2007-08, a figure expected to double this fiscal. Analysts attribute the situation to faulty business models that relied on pricing tickets below cost price to grab market share despite which airlines were unable to achieve break even. The plight of airlines is evident from the following incident. During a recent flight carrying less than 50 passengers from Hyderabad to Delhi on a 180-seater aircraft, the pilot announced, half jokingly, “Sit as comfortably as possible and stretch across as many seats as you like!”
Today’s airlines may call themselves low-cost carriers, but the truth is that they are just low-fare airlines. If this situation were to prevail for a few more years, we might see most private operators packing their bags and running home.
High fares have once again made air-travel a luxury meant only for the rich. Reduction of costs has led to safety worries among travellers. There has been a big dip in the quality of services as well. Though not too many airlines have given out pink slips as of now but there have been pay-cuts and a large amount of job-insecurity among employees. The largest benefiters of the recent aviation boom were other industries such as airports and crew training schools. These industries are facing severe problems today.

Scenario of some major airlines

Air India– Due to high oil prices and low yields, India’s only government owned airline is unable to turn around money fast enough to keep pace with its capital needs. Some of the steps taken by them are:
i. Reduce fleet – They have decided not to renew 13 leases on orders for new planes, which will expire in December this year.
ii. Cut flights which were huge losses for the company
iii. Cut costs on publications
iv. Cut costs on manpower travel

Jet Airways
– Its yields are better than others because of its business class revenue. However, seat occupancy has fallen and fuel costs have nearly doubled. Jet is losing more than $1 million a day. Jet Airways’ owner and Chairman Naresh Goyal has warned that if the trend of high ATF prices continued for another year, his airline may have to face closure. Some of the steps taken by them are:
i. Cancelled or down-sized many national and international flights
ii. Strict control on costs such as fuel consumption, payroll and capital expenditure
iii. Re-negotiating all contracts for goods and services

SpiceJet– SpiceJet has been unable to recover even the fixed costs on a large number of its flights, leave alone the variables. Every day, it flies only once, sometimes twice, between Delhi and Mumbai, India’s busiest route, and that too with less than 100 passengers on board a 180-seater aircraft. The more they fly, the more they lose. The losses have forced SpiceJet to hand out two board seats and quasi-equity instruments to investor Wilbur Ross, for a lifeline of $80 million. At the current rate of losses, that is about 160 days of blood. Some of the steps taken by them are:
i. Fleets down from 17 to 15 aircraft
ii. Flights down from 117 to 97 a day
iii. Surrendered landing slots in Hyderabad, Bangalore, Ahmedabad and Jaipur
iv. Closed Port Blair and Cochin stations

GoAir– This airline owned by the Wadia-group has been facing the maximum number of problems. Some of the steps taken by them are:
i. Cancelled the largest number of flights. From 561 flights every week, it is down to 200, and plans to cut 75 more
ii. Grounded one plane and looking at ways to reduce capacity
iii. Only airline that is laying off staff

Badly formulated business plans

Four years back many entrepreneurs entered the aviation market eyeing huge profits and a booming sector. Owning an airline became a symbol of prosperity. Even today, at least five corporate houses are sitting with licences for regional airlines but no business plans. Many of them achieved early success by pulling away train travellers with rock bottom fares as low as Rs. 1. Nine airlines were launched in 12 months that placed orders for over 200 planes. Pilots and CEOs were hired at exorbitant salaries. Without expanding the network enough, India’s low-cost carriers charged low fares to fill up planes, which pushed up the break-even levels of seat occupancy. The infrastructure crunch meant maintenance of 5-7 bases around the country with pilots, engineers, etc. at each, adding considerably to the already high overheads. The ultimate blow came in the form of rising oil prices, a 5-17 per cent monthly rise in aviation turbine fuel (ATF) prices.
Aviation is also susceptible to regulation. It cannot function effectively if the other parts of the chain are held back, because of either regulations or lack of funds. The uncertainty in government policies has been a major cause for concern in the recent past.
One reason why uptake is not higher in India is that the air travel experience here is still so complicated. The difficulty in getting to airports and the chaos of subsequent processes scares passengers away. Hopping on a train may be slower but it is far easier.

Some solutions to the present scenario

i. Expand consumer-base – Even today, the bulk of Indian travellers use trains and a very few fly
ii. Save costs – Withdraw publications, charge luggage, reduce on-flight services such as movies, charge food items
iii. Fuel cost management – Even though hedging rules were notified in July 2007, no airline in India has used the option.
iv. Mergers and sale of stake – Rumours suggest that GoAir promoters, the Wadia family may be in an advanced stage of talks to sell a substantial stake in the airline. Reports also suggest that UB Group chief, Vijay Mallya, may be in talks with SpiceJet’s main promoter, Bhupendra Kansagra, to pick up the Kansagra family stake of 12.9 %.
v. Stop paying commission to agents on ticket sales – Currently, agents are paid 5 per cent commission on the value of the ticket sold and they sell about 90 per cent of all airline tickets.
vi. Variable fares for luggage

Looking at the present state of the Indian aviation sector, the government of India seems very unlikely to come to the rescue of private airliners. These carriers will have to do a complete rework on their business models. Implementation of no single policy can solve the imminent problems. Not only their own, but the plight of Indian air-travellers also lies very much in the hands of these airlines. Moreover, if something is not done soon, we may see the sector returning to the by-gone era of Government monopoly and air-travel for only the rich. We will have to wait and see whether history repeats itself.

India’s FMCG sector has finally proved to be one of the front-runners in India’s growth marathon. During the past few years, this sector has shown shocking double-digit growth figures. According to a survey conducted by FICCI (Federation of Indian Chambers of Commerce & Industry), sales will grow by 16% to 9.52 trillion during this fiscal year as compared to 14.5% growth in the previous year. The survey attributes this growth to factors such as increased literacy, rising aspiration levels, growing consumer demand, etc.

The industry’s future prospects look bright, seeing the rising incomes and the modernisation of retail. However studies have shown that there is still a large amount of untapped potential in this field and possibilities to grow further.

Main Drivers for Growth in FMCG:-

1. Higher Consumer spending –
The per capita disposable income of people in both urban as well as rural areas has seen a good rise in the past few years. Differential pricing has helped consumers from all economic demographics experiment with new products based on their needs and abilities. A prominent shift has been seen from consumer electronics to other consumer goods such as cosmetics, soaps & detergents, etc. Most FMCG players have been targeting the consumer’s needs and converting these into strategies and final products.

2. Benefits of Organization in Retail FMCG –
Organised retail has been a boon for both the consumers as well as suppliers. This is evident from the success of recent retail players that have entered the market such as Reliance Fresh, Big Bazaar, More, etc. For suppliers, especially farmers, organised retail allows them to receive better prices for their produce. For consumers, the benefits include ease of shopping, better comparison of products, good ambience, etc. But the most important factor is that consumers spend more on a product’s value and less is wasted in services such as distribution.

3. Penetration –
FMCG majors have been looking to penetrate the mostly untapped rural as well as semi-urban areas of India. To achieve this, they have planned to implement better distribution networks. According to Asschom, FMCG will witness more than 50% of its growth in the rural and semi-urban segments by 2010. In the urban regions, due to cut throat competition FMCG players have gone in for other promotional strategies such as branding, product differentiation, package innovation, highlighting the functional aspect of foods, etc. The development of better and faster means of transport will increase FMCG penetration in the long term.

4. Indian competitiveness and global market –
India has an advantage over other nations in FMCG due to certain reasons, such as
a) Easy and cheap availability of various raw materials
b) Cheap labour
c) Spread of Indian companies across the complete value chain

5. Shift of demand from unbranded to branded goods –
Consumers have become more aware of the benefits of branded commodities in food, clothing, toiletries, etc. This has resulted in a willingness to shell out more money for such products.

Trends that may be expected in FMCG over next few years –

1. Inclination towards environment-friendly goods –
Consumers are expected to appreciate socially responsible trade. This shall lead to a move towards products with ingredients that can be replenished and more natural/herbal cosmetics and skin care products.

2. Use of more technology –
The coming years will see a greater amount of e-marketing and blogging for promotion of goods. IT is expected to help in consumer-tracking as well as Supply Chain Management.

3. More goods catering to the youth –
With the increase in youth population in India, the FMCG sector is trying to come up with more products which appeal to this class of consumers. This will include more branding of commodities such as clothing, cosmetics and other accessories.

4. Health food categories –
This mainly targets the health-conscious, rich urban Indian. Some goods already existent in this segment are skimmed milk, diet soft drinks, multigrain bread, sugar-free, etc.

5. Inflation impacts –
FMCG majors are coming up with various measures to combat the double digit inflation. These measures include repositioning of product lines, variant packaging, strengthening distribution and logistics, etc.

If FMCG is GOD, who are the ANGELS??
Yes, I’m talking about the big FMCG players in India that have brought this sector into the limelight. Some of them are listed below in order of their net worth. Each company is a leader in their respective sector.
1. Hindustan Unilever Ltd.
2. ITC (Indian Tobacco Company)
3. Nestle’ India
4. Amul
5. Dabur India
6. Asian Paints
7. Cadbury India
8. Brittania Industries
9. P & G Hygiene and Health Care
10. Marico Industries

Problems that this Industry may face in the near future –

i. Stiff competition among domestic and foreign entrants-
Players from the organised as well as unorganised sector continue to grab at each other’s market shares. The entry of existing players in new segments has resulted in high pressure on margins. This has been tackled by more expenses on promotion and advertising.

ii. Poor transport facilities –
The highly scattered market basket is difficult to cater to with inadequate infrastructure. Rural and semi-urban penetration in such conditions becomes a great challenge.

iii. Low Brand-Awareness –
The lack of knowledge of branded, genuine commodities among people in small towns allows local dealers to sell spurious products.

iv. Increase in factor prices –
The sustained inflationary market has put a major dent in the FMCG industry. It has led to higher costs of raw materials as well as packaging and distribution. Most companies try to transfer the burden to consumers to some extent by price hikes and smaller SKUs. Even then, margins go down. Generally consumers stick to their preferred brands as long as price hikes are reasonable.

With the Indian economy on a high growth flight, the one-billion plus population proves to be a tremendous asset for the FMCG sector. But at the same time, it may be a very difficult place to operate in. The companies will have to strategize and make sure that they are aligned to the prevailing market scenario. In all, we can say that the FMCG GOD is omnipresent.