The JV with SBI is a master strategy of TCS to get the SBI account

(column by Richa Sharma)

One is India's topmost software services provider and the other is India's number one bank in assets. On November 14, 2005 ostensibly in mutual\ recognition of their respective strengths, TCS (Tata Consultancy Services) and SBI (State Bank of India) came together for a joint venture (JV) to offer technology solutions and consulting services to banking, financial services and insurance sectors (BFSI).

TCS and SBI will respectively have a 51% and 49% stake in the new venture. The JV, C-EDGE Technologies Ltd, as claimed, will operate worldwide to develop niche solutions. S. Ramadorai, CEO of TCS says, "This relationship will now focus on developing cutting edge financial technologies."

According to NASSCOM, the BFSI industry accounts for about 40% of IT spending. While its recent tie ups, like ABN Amro, Pearl Group and acquisition of FNS (an Australian banking solutions firm) show a fixation of TCS on BFSI, this recent JV with SBI poses critical questions.

TCS has been accused of setting up this joint venture with only a single focus, that is, to provide technology solutions to just State Bank of India. The fact is that TCS does not require SBI's fi nancial wherewithal (or its technical expertise) to start a corporation to target the BFSI segment.

The only reason critics say TCS has invited SBI to pour money (a minority stake, for records) is to ensure that SBI provides the new corporation with a high net worth order. The financial participation of SBI in the project would also ensure that TCS is able to 'incentivise' SBI legally for giving the order - through dividends earned by C-EDGE.

This argument holds weight, when one realises that FNS, the Australian firm recently acquired by TCS, was actually the IT solutions provider to SBI till very recently. One can also historically note the examples of IT solution firms like Orbitech (floated as a joint venture between Citigroup and other partners), which finally ended up being significant service providers to just singular entities (in Orbitech's case, Citigroup), as other banks refused to give Orbitech soft ware accounts, citing conflicts of interest.

This ended up with Citigroup finally selling off a large part of its stake to third parties. And this most probably would be the way C-EDGE would go in a few years; with either SBI or TCS selling off their stake, once (and if) the SBI project is completed. So is this kind of a strategy ethical? Yes indeed!

For the first time, India is seeing IT firms co-creating value with the consumer, and not just at a research platform. By allowing customers equity ownership of products, the commitments towards quality become enormous. This is indeed a masterstroke of TCS; and excellent enough to be the benchmark for its other verticals.

(End of Richa Sharma column)

The Shaw must go on
Biocon must seek more alliances to increase its global footprint

(column by Vareen Gadhoke)

Even with a degree in brewing, Kiran Mazumdar-Shaw did not join the liquor industry. Instead, she moved on to what is now her idée fixe - Biocon Limited, India's largest biotech company. With aspirations to take her company to new heights, Mazumdar-Shaw's Biocon, on November 18, 2005, inked a product licensing agreement with Bentley Pharmaceuticals Inc., for the development and marketing of an intranasal insulin spray.

The agreement will cover eighty five countries, granting Biocon exclusive and co-exclusive rights all over Asia, Africa and the Middle East. Mazumdar- Shaw said, "As one of the largest producers of insulin, this cooperation is of great strategic importance to us."

But Biocon suffering a 22% net profit decline in the half year ending Sep., 2005, puts questions on its claims. The company attributes this to price erosion in European markets. Shaw is confident that R&D in diabetes & oncology will provide sustainable shareholder value. Biocon, of course, should continue aggressively seeking strategic alliances with top notch global biotech biggies.

But the truth is that Biocon has insufficient financial muscle to go big-time in the global arena (cash reserves fell from Rs.3,175 million in 2003 to a dismal Rs.34 million in 2004); ergo, it needs to urgently follow the footsteps of giants like Ranbaxy, who became global players by entering into strategic alliances with third parties. Biocon must ensure that the momentum is not lost; for India is just a few years away from the making of a global queen; so what if she is a biotech wonder?

(End of Vareen Gadhoke column)

Lighten up Guys
Philips India must focus on low end innovations in consumer electronics

(column by Smita Polite)

Royal Philips Electronics might be lighting up the world from Pyramids to Khajuraho, but its Indian division has seen really dark days, ever since the Korean chaebols steamrolled their way into India. In that context, CEO Gerard Kleisterlee's visit to India on November 15, 2005 was timely indeed.

During his first visit in 2003, Royal Philips Electronics decided to move away from its consumer electronics and lighting company tag to that of a company that converges healthcare, lifestyle and technology. However, Philips must not overlook the fact that the highest contributor to revenue in 2004 was consumer electronics that recorded a 42% growth. In contrast, lighting grew by a relatively low 12% in 2004.

In its consumer electronics segment however, Philips, with its 75 year experience in India, and revenues of Rs.9.7 billion in 2004, stands surprisingly dwarfed in comparison to the late entrants, that is, Korean chaebols LG (Rs.65 billion revenues in 2004) and Samsung (Rs.49 billion revenues in 2004).

Part of the problem was labour unionisation in Philips' manufacturing units in West Bengal. But the larger problem has been the complacency in its marketing and branding strategies. Philips has been unable to compete with the Koreans in product pricing and low end innovation.

Even Kleisterlee admitted, "India has the potential to become a test bed for developing solutions that address the needs of people at the base of the pyramid." Philips should focus on customizing its global products to suit local needs, like it successfully did with the launch of Digital Clear Vision and Eye-Fi TVs, the low cost alternatives to Ambilight Flat TV and Pixel Plus respectively.

Philips has to wake up to the new realities in the Indian consumer electronics space, and in accordance with Kleisterlee- speak, focus on the Indian mass markets with products based on low-end innovation. It's better to stand & fight in the light, than slink off in the darkness.

(End of Smita Polite column)

Highway Mania
Indian truck manufacturers must shift towards high-technology and high capacity vehicles

(column by Karan Mehrishi)

Adieu to the haggard workhorses of yore. And ahoy there thee new mean machines! As the Indian trucking industry prepares to shed off its traditional fuddy-duddy image, India is in for a paradigm shift in the way it looks at these leviathans that ply day and night on the Indian highways.

Perhaps the major reason for this impending shift has been the entry of foreign players like Volvo and Mercedes in the Indian market. These players have come loaded with the latest technologies offering high capacity trucks that decisively overshadow the technologically inferior Indian models, and this has shifted the focus towards more efficient and larger machines, and brought about riveting action in the Medium Capacity Vehicle (MCV) and High Capacity Vehicle (HCV) segment.

After showing higher than industry average growth of 23% in 2004, HCV sales have reached a plateau of sorts in the period of April-October 2005 with sales of 103,859 units - a yoy (year on year) growth of just 1.07%, which has been attributed to most transporters having booked their orders in advance. However, this is considered by analysts to be just a temporary phase, and undoubtedly the cycle of growth is expected to pick up again in a few years.

Truly, domestic players, in particular Tata Motors, have not remained unaffected by the developments post the entry of foreign players. On November 14, 2005, Tata Motors unveiled its latest state-of-the-art truck manufacturing facility in Jamshedpur. This move symbolizes Tata's technical competitiveness and its apparent shift towards HCVs.

With regards to the threat posed by the foreign behemoths, Debashish Roy, spokesperson, Tata Motors, counters, "We have a deeper understanding of the market." After its acquisition of Daewoo's truck division in Korea in 2004, Tata has the advantages of being able to access the latest technologies and tap into bigger markets.

A slew of other acquisitions, such as a 21% stake in Spain's Hispano Carrocera, have made the company prominent in countries like South Korea, Senegal, Morocco and others. Mahindra & Mahindra, another Indian bigfoot, has collaborated with Navistar International Corporation, and has plans to produce trucks and buses by 2007.

Ashok Leyland's Iveco connection has helped it move away from the boxy Comet series, to more contemporary trucks like the Tusker Turbo Tractor 3516. The only issue of concern that remains is the effective implementation of these new technologies.

Today, high capacity trucks come with features - like direct injection, anti skid braking system (ABS) and brake assist system (BAS) - never heard off in India, helping increase driver efficiency, a factor considered pivotal for goods expedition, especially with regards to Indian parameters.

According to Eric Leblanc, MD, Volvo India, "The fundamental principle in trucking is the ability to do more with less." The European model is to use a small number of expensive, efficient machines. But all is not so rosy. The Indian trucking brain still assumes 'cheaper is better', and prefers to use a large number of cheap trucks instead; reason why sales of LCVs (low capacity vehicles) still grew by an astounding 21.5% in the period of April to October 2005.

The non capital intensive nature of the Indian economy makes driver and inventory utilization extremely important. Despite the slowdown in sales growth of HCVs and MCVs so far in 2005, the trends clearly indicate a dramatic change in the traditional mindset towards higher capacity and technologically superior vehicles.

In acknowledgement of this change, the players must realign their strategies towards greater investments in latest technologies and higher capacity vehicles, in accordance with the customer requirements. Once the MCV & HCV sector picks up again to touch the growth rates of 2004, as anticipated, it is certain that there will be enough business for all.

(End of Karan Mehrishi column)

The plot thickens further
HLL must spruce up its sourcing network to control its costs

(column by Virat Bahri)

The good news pal, is that it is still afloat. But the flip side is that merely staying afloat is not what one would expect of a company like Hindustan Lever Ltd (HLL). India's largest FMCG company continues to face the debacle of sluggish profit growth, as confirmed by their results for the quarter ending September 2005.

While HLL's sales growth for the quarter was 15.9%, net profit rose by merely 0.5% over 2004. A comparison with other FMCG players further con- firms that HLL has underperformed. Competitive pricing, advertising and promotion expenses (approximately 9% of sales, higher by 22% over 2004) are the alleged culprits.

"HLL has embarked on a cost management programme along with product innovation like the new variants of Lifebuoy, Brooke Bond Red Label...," said R. Ram, spokesperson, HLL. He highlighted that HLL would continue to spend heavily on advertising and promotion to increase market share. With resurgence of competition, HLL's problems do not seem restricted to cost control.

Its main competitor ITC has successfully ramped up its rural sourcing through its e-choupals and is leveraging the same to compete aggressively on price and product quality. While HLL struggles, ITC is creditably providing shareholder value, while expanding its FMCG portfolio by delving into its deep pockets; thanks to its cigarettes business.

HLL needs to focus on building an efficient sourcing network by leveraging on its distribution reach to control costs for the long term. Problems could aggravate with opening up of FDI in retail, wherein global giants enter with their huge resources and undermine HLL's bargaining power with its suppliers. Furthermore you can count on them to merchandise their own brands, a problem that HLL's parent Unilever faces in Europe. It's time the child chart its own course rather that blindly following its parent...

(End of Virat Bahri column)

Back 2 square1?
Essar must concentrate on select areas instead of over-stretching

(column by Vareen Gadhoke)

Once bitten twice shy," does not seem to ring a bell with the Essar Group and its promoters. Essar Steel is coming out of the discomfiting CDR (Corporate Debt Restructuring) programme by the end of this fiscal year, by pre-paying its creditors, which means more expansions for the group.

Add to this a net growth of 158.24% in the first half of 2005, and they surely seem to be a trigger happy lot. Essar is now aggressively investing in capital intensive sectors like telecom, steel, petroleum, power, and shipping. Is Essar committing its mistakes of the nineties by stretching itself too thin?

In all these sectors it has to compete with deep pocketed heavyweights. In petroleum, Essar is dwarfed by Reliance, which recently set up a thirty-six million tonne refinery. In steel, global giants like Mittal Steel and Posco ace over Essar. Unlike its rivals, Essar has just come out of a turbulent period and does not have the huge cash reserves.

The expansion programme, valued at a staggering Rs.20 billion, is expected to be completed by 2006. This will make them the largest integrated flat steel producer on India's west coast. But what if there is a cyclical downturn in the steel sector? They will find themselves staring at bankruptcy.

But according to the Essar Group spokesperson, "Each project of the group is independently financed, based on merit. Hence, there is no question of divesting businesses to fund these projects." So far, the mantra of investing in capital intensive areas has been good for the group.

But Essar should focus more on a few specific sectors and divest from certain areas where it would be vulnerable to external vagaries. It has literally taken an era for the Essar Group to come out of CDR, and it would not want to make a strategic blunder once more.

(End of Vareen Gadhoke column)