How does lifting of ‘Country-wise quota regime’ help Arvind Mills
How does lifting of ‘Country-wise quota regime’ help Arvind Mills
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International Business
CASE: I ARROW AND THE APPAREL INDUSTRY
Ten years ago, Arvind Clothing Ltd., a
subsidiary of Arvind Brands Ltd., a member of the Ahmedabad based Lalbhai
Group, signed up with the 150- year old Arrow Company, a division of Cluett
Peabody & Co. Inc., US, for licensed manufacture of Arrow shirts in India.
What this brought to India was not just another premium dress shirt brand but a
new manufacturing philosophy to its garment industry which combined high
productivity, stringent in-line quality control, and a conducive factory
ambience. Arrow’s first plant, with a 55,000 sq. ft. area and capacity to make
3,000 to 4,000 shirts a day, was established at Bangalore in 1993 with an
investment of Rs 18 crore. The conditions inside—with good lighting on the
workbenches, high ceilings, ample elbow room for each worker, and plenty of
ventilation, were a decided contrast to the poky, crowded, and confined
sweatshops characterising the usual Indian apparel factory in those days. It
employed a computer system for translating the designed shirt’s dimensions to
automatically mark the master pattern for initial cutting of the fabric layers.
This was installed, not to save labour but to ensure cutting accuracy and low
wastage of cloth. The over two-dozen quality checkpoints during the conversion
of fabric to finished shirt was unique to the industry. It is among the very
few plants in the world that makes shirts with 2 ply 140s and 3 ply 100s cotton
fabrics using 16 to 18 stitches per inch. In March 2003, the Bangalore plant
could produce stain-repellant shirts based on nanotechnology.
The
reputation of this plant has spread far and wide and now it is loaded mostly
with export orders from renowned global brands such as GAP, Next, Espiri, and
the like. Recently the plant was identified by Tommy Hilfiger to make its brand
of shirts for the Indian market. As a result, Arvind Brands has had to take
over four other factories in Bangalore on wet lease to make the Arrow brand of
garments for the domestic market.
In
fact, the demand pressure from global brands which want to outsource form
Arvind Brands is so great that the company has had to set up another large
factory for export jobs on the outskirts of Bangalore. The new unit of 75,000
sq. ft. has cost Rs 16 crore and can turn out 8,000 to 9,000 shirts per day.
The technical collaborators are the renowned C&F Italia of Italy.
Among
the cutting edge technologies deployed here are a Gerber make CNC fabric
cutting machine, automatic collar and cuff stitching machines, pneumatic
holding for tasks like shoulder joining, threat trimming and bottom hemming, a
special machine to attach and edge stitch the back yoke, foam finishers which
use air and steam to remove creases in the finished garment, and many others.
The stitching machines in this plant can deliver up to 25 stitches per inch. A
continuous monitoring of the production process in the entire factory is done
through a computerised apparel production management system, which is hooked to
every machine. Because of the use of such technology, this plant will need only
800 persons for a capacity which is three times that of the first plant which
employs 580 persons.
Exports
of garments made for global brands fetched Arvind Brands over Rs 60 crore in
2002, and this can double in the next few years, when the new factory goes on
full stream. In fact, with the lifting of the country-wise quota regime in
2005, there will be surge in demand for high quality garments from India and
Arvind is already considering setting up two more such high tech
export-oriented factories.
It is
not just in the area of manufacture but also retailing that the Arrow brand
brought a wind of change on the Indian scene. Prior to its coming, the usual
Indian shirt shop used to be a clutter of racks with little by way of display.
What Arvind Brands did was to set up exclusive showrooms for Arrow shirts in
which the functional was combined with aesthetic. Stuffed racks and clutter
eschewed. The product were displayed in such a manner the customer could spot
their qualities from a distance. Of course, today this has become standard practice
with many other brands in the country, but Arrow showed the way. Arrow today
has the largest network of 64 exclusive outlets across India. It is also
present in 30 retail chains. It branched into multi-brand outlets in 2001, and
is present in over 200 select outlets.
From
just formal dress shirts in the beginning, the product range of Arvind Brands
has expanded in the last ten years to include casual shirts, T-shirts, and
trousers. In the pipeline are light jackets and jeans engineered for the
middle-aged paunch. Arrow also tied up with the renowned Italian designer,
Renato Grande, who has worked with names like Versace and Marlboro, to design
its Spring / Summer Collection 2003. The company has also announced its
intention to license the Arrow brand for other lifestyle accessories like
footwear, watches, undergarments, fragrances, and leather goods. According to
Darshan Mehta, President, Arvind Brands Ltd., the current turnover at retail
prices of the Arrow brand in India is about Rs 85 crore. He expects the
turnover to cross Rs 100 crore in the next few years, of which about 15 per
cent will be from the licensed non-clothing products.
In
2005, Arvind Brands launched a major retail initiative for all its brands.
Arvind Brands licensed brands (Arrow, Lee and Wrangler) had grown at a healthy
35 per cent rate in 2004 and the company planned to sustain the growth by
increasing their retail presence. Arvind Brands also widened the geographical
presence of its home-grown brands, such as Newport and Ruf-n Tuf, targeting
small towns across India. The company planned to increase the number of outlets
where its domestic brands would be available, and draw in new customers for
readymades. To improve its presence in the high-end market, the firm started
negotiating with an international brand and is likely to launch the brand.
The
company has plans to expand its retail presence of Newport Jeans, from 1200
outlets across 480 towns to 3000 outlets covering 800 towns.
For a
company ranked as one of the world’s largest manufactures of denim cloth and
owners of world famous brands, the future looks bright and certain for Arvind
Brands Ltd.
Company
profile
Name of
the Company :Arvind Mills
Year of
Establishment :1931
Promoters : Three brothers--Katurbhai,
Narottam Bhai, and Chimnabhai
Divisions :Arvind Mills was split in
1993 into Units—textiles, telecom and garments. Arvind Ltd. (textile unit) is
100 per cent subsidiary of Arvind Mills.
Growth
Strategy :Arvind Mills has grown through buying-up
of sick units, going global and acquisition of German and US brand names.
Questions
1.
Why did Arvind Mills choose globalization
as the major route to achieve growth when the domestic market was huge?
2.
How does lifting of ‘Country-wise quota
regime’ help Arvind Mills?
3.
What lessons can other Indian businesses
learn form the experience of Arvind Mills?
CASE: II THE ECONOMY OF KENYA
Kenya’ economy has been beset by high
rates of unemployment and underemployment for many years. But at no time has it
been more significant and more politically dangerous than in the late 1990s as
an authoritarian beset by corruption, cronyism and economic plunder threatened
the economic stability of this once proud nation. Yet Kenya still has great
potential. Located in East Africa, it has a diverse geographic and climatic
endowment. Three-fifths of the nation is semiarid desert (mostly in the north),
and the resulting infertility of this land has dictated the location of 85 per
cent of the population (30 million in 2000) and almost all economic activity in
the southern two-fifths of the country. Kenya’s rapidly growing population is
composed of many tribes and is extremely heterogeneous (including traditional
herders, subsistence and commercial farmers, Arab Muslims, and cosmopolitan
residents of Nairobi). The standard of living at least in major cities, is
relatively high compared to the average of other sub-Saharan African countries.
However,
widespread poverty (per capita US$360), high unemployment, and growing income
inequality make Kenya a country of economic as well as geographic diversity.
Agriculture is the most important economic activity. About three quarters of
the population still lives in rural areas and about 7 million workers are employed
in agriculture, accounting for over two-thirds of the total workforce. Despite
many changes in the democratic system, including the switch from a federal to a
republican government, the conversion of the prime ministerial system into a
presidential one, the transition to a unicameral legislature, and the creation
of a one-party state, Kenya has displayed relatively high political stability
(by African standards) since gaining independence from Britain in 1963. Since
independence, there have been only two presidents. However, this once stable
and prosperous capitalist nation has witnessed widespread ethnic violence and
political upheavals since 1992 as a deteriorating economy, unpopular one-party
rule, and charges of government corruption create a tense situation.
An
expansionary economic policy characterised by large public investments, support
of small agricultural production units, and incentives for private (domestic
and foreign) industrial investment played an important role in the early 7 per
cent rate of GDP growth in the first decade after independence. In the
following seven years (1973-80), the oil crisis let to a lower GDP growth to an
annual rate of 5 per cent. Along with the oil price shock, lack of adequate
domestic saving and investment slowed the growth of the economy. Various
economic policies designed to promote industrial growth led to a neglect of
agriculture and a consequent decline in farm prices, farm production, and
farmer incomes. As peasant farmers became poorer, more migrated to Nairobi,
swelling an already overcrowded city and pushing up an existing high rate of
urban unemployment. Very high birthrates along with a steady decline in death
rates (mainly through lower infant mortality) led Kenya’s population growth to
become the highest in the world (4.1 per cent per year) in 1988. Population
growth fell to a still high rate of 2.4 per cent for the period 1990-2000.
The slowdown in GDP growth persisted in the
following five years (1980-85), when the annual average was 2.6 per cent. It
was a period of stabilization in which political shakiness of 1982 and the
severe drought in 1984 contributed to a slowdown in industrial growth. Interest
rates rose and wages fell in the public and private sectors. An improvement in
the budget deficit and current account trade deficit, obtained through cuts in
development expenditures and recessive policies aimed at reducing imports,
contributed to lower economic growth. By 1990, Kenya’s per capita income was 9
per cent lower than it was in 1980--$370 compared to $410. It continued to
decline in the 1990s. In fact, GDP per capita fell at an annual average rate of
0.3 per cent throughout the decade. At the same time, the urban unemployment
rate rose to 30 per cent.
Comprising
23 per cent of 2000 GDP AND 77 per cent of merchandise exports, agricultural
production is the backbone of the Kenyan economy. Because of its importance,
the Kenyan government has implemented several policies to nourish the
agricultural sector. Two such policies include fixing attractive producer
prices and making available increasing amounts of fertilizer. Kenya’s chief
agricultural exports are coffee, tea, sisal, cashew nuts, pyrethrum, and
horticultural products. Traditionally, coffee has been Kenya’s chief earner in
foreign exchange.
Although
Kenya is chiefly agrarian, it is still the most industrialised country in
eastern Africa. Public and private industry accounted for 16 per cent of GDP in
2000. Kenya’s chief manufacturing activities are food processing and the
production of beverages, tobacco, footwear, textiles, cement, metal products,
paper, and chemicals.
Kenya
currently faces a multitude of problems. These include a stagnating economy,
growing political unrest, a huge budget deficit, high unemployment, a
substantial balance of payments problem, and a stubbornly high population
growth rate.
With
the unemployment rate already at 30 per cent and its population growing, Kenya
faces the major task of employing its burgeoning labour force. Yet only 10-15
per cent of seekers land jobs in the modern industrial sector. The remainder
must find jobs in the self-employment sector; in the agricultural sector, where
wages are low and opportunities are scarce; or join the masses of the
unemployed.
In
addition to the unemployment problem, Kenya must always be concerned with how
to feed its growing population. An increase in population means an increasing
demand for food. Yet only 20 per cent of Kenya’s land is arable. This implies
that the land must become increasingly productive. Unfortunately, several
factors work to constrain Kenya’s food output, among them fragmented
landholdings, increasing environmental degradation, the high cost of
agricultural inputs, and burdensome governmental involvement in the purchase,
sale, and pricing of agricultural output.
For the
fiscal year 1995, the Kenyan budget deficit was $362 million, well above the
government’s target rate. Dealing with a high budget deficit is a second
problem Kenya currently faces. Following the collapse of the East African
Common Market, Kenya’s industrial growth rate has declined; as a result the
government’s tax base has diminished. To supplement domestic savings, Kenya has
had to turn to external sources of finance, including foreign aid grants from
Western governments. Its highly protected public enterprises have been turning
in a poor performance, thus absorbing a large chunk of the government budget.
To pay for its expenses, Kenya has had to borrow from international banks in
addition to foreign aid. In recent years, government borrowing from the
international banking system rose dramatically and contributed to a rapid
growth in money supply. This translated into high inflation and pinched
availability of credit.
Kenya
has also had a chronic international balance of payments problem. Decreasing
prices for its exports, combined with increasing prices for its imports, left
Kenya importing almost twice as much as it exported in 2000, at $3,200 million
in imports and only $1,650 million in exports. World demand for coffee, Kenya‘s
predominant exports, remains below supply. In 2001-01, a dramatic surge in
coffee exports from Vietnam hurt Kenya further. Hence Kenya cannot make full
use of its comparative advantage in coffee production, and its stock of coffee
has been increasing. Tea, another main export, has also had difficulties. In
1987, Pakistan, the second largest importer of Kenyan tea, slashed its
purchases. Combined with a general oversupply in the world market, this fall in
demand drove the price of tea downward. Hence Kenya experienced both a lower
dollar value and quantity demanded for one of its principal exports.
Kenya
faces major challenges in the years ahead as the economy tries to recover.
Current is expected to be no more than 1 to 2 per cent annually. Heavy rains
have spoiled crops and washed away roads, bridges, and telephone lines. Foreign
exchange earnings from tourism, once promising, dropped by 40 per cent in the
mid-1990s, then suffered again after the August 7, 1998, terrorist bombing of
the US embassy in Nairobi. Even more frightening, however, is the prospect of
growing hunger as Kenya’s maize (corn) crop has failed to meet rising internal
demand and dwindling foreign exchange reserves have to be spent to import food.
Corruption is perceived to be so widespread that the International Monetary
Fund and World Bank suspended $292 million in loans to Kenyan in the summer of
1997 while insisting on tough new austerity measures to control public spending
and weed out economic cronyism. As a result, the economy went into a tailspin,
foreign investors fled the country, and inflation accelerated markedly.
Unfortunately,
needed structural adjustments resulting form the World Bank—and IMF—induced
austerity demands usually take a long time. Whether the Kenyan political and economic
system can withstand any further deterioration in living conditions is a major
question. Public protests for greater democracy and a growing incidence of
ethnic violence may be harbingers of things to come.
Fig
1 Continuum of Economic
Systems
Pure Market Pure
Centrally Planned Economy
Economy
The US France India China
Canada Brazil Cuba
UK North Korea
Questions
1. Is the economic environment of Kenya
favourable to international business? Yes or no—substantiate.
2. In the continuum of economic systems (see Fig
1), where do you place Kenya and why
Case III: LATE MOVER ADVANTAGE?
Though a late entrant, Toyota
is planning to conquer the Indian car market. The Japanese auto major wants to dispel
the notion that the first mover enjoys an edge over the rivals who arrive late
into a market.
Toyota
entered the Indian market through the joint venture route, the partner being
the Bangalore based Kirloskar Electric Co. Know as Toyota Kirloskar Motor
(TKM), the plant was set up in 1998 at Bidadi near Bangalore.
To
start with, TKM released its maiden offer—Qualis. Qualis is not a newly
conceived, designed, and brought out vehicle. Rather it is the new avatar of Kijang under which brand the
vehicle was sold in markets like Indonesia.
Qualis
virtually had no competition. Telco’s Sumo was not a multi-utility vehicle like
Qualis. Rather, it was mini-truck converted into a rugged all-purpose van. More
importantly, Toyota proved that even its old offering, but decked up for India,
could offer better quality than its competitor. Backed by a carefully thought
out advertising campaign that communicated Toyota’s formidable global
reputation, Qualis went on a roll and overtook Tata Sumo within two years of
launch.
Sumo
sold 25,706 vehicles during 2000-2001, compared to a 3 per cent growth over the
previous year, compared to 25,373 of Qualis. But during 2001-2002, it was a
different story. Qualis had been clocking more than 40 per cent share of the
market. At the end of Sept 2001, Qualis had sold over 25,000 units, compared to
Sumo’s 18000 plus.
The
heady initial success has made TKM think of the future with robust confidence.
By 2010, TKM wants to make and sell one million vehicles per year and garner
one-third share of the Indian market.
The
firm is planning to introduce a wide range of vehicle—a sub-compact, a sedan, a
luxury car and a new multi-utility vehicle to replace Qualis. A significant
percentage of the vehicles will be exported.
But
Toyota is not as lucky in China. Its strategy of ‘late entry’ in China seems to
have back fired. In 2005, it sold just 1,83,000 cars in China, the fastest
growing auto market in the world. Toyota ranks ninth in the market, far behind
Volkswagen, General Motors, Hyundai and Honda.
Toyota
delayed producing cars in China until 2002, when it entered a joint venture
with a local company, the First Auto Works Group (FAW). The first car
manufactured by Toyota-FAW, the Vios, failed to attract much of a market, as,
despite its unremarkable design, it was three times as expensive as most cars
sold in China.
Late
start was not the only problem. There were other lapses too. Toyota assumed the
Chinese market would be similar to the Japanese market. But Chinese market, in
reality, resembled the American market.
Sales
personnel in Japan are paid salaries. They succeeded in building a loyal
clientele for Toyota by providing first-class service to them. Likewise, most
Japanese auto dealers sell a single brand, thereby ensuring their loyalty to it.
Japan is a relatively a well-knit country with an ethnically homogeneous
population. Accordingly, Toyota used nationwide advertising to market its
products in its home country.
But
China is different. Sales people are paid commissions and most dealers sell
multiple brands. Obviously, loyalty plays little role in motivating either the
sales staff or the dealers, who will ignore a slow selling product should a
more profitable one turn up. Besides, China is a large, diverse country. A
standardised ad campaign will not do. Luckily, Toyota is learning its lessons.
Competition
in the Chinese market is tough, and Toyota’s success in reaching its goal of
selling a million cars a year, by 2010, is uncertain. But, its chances are
brighter as the company is able to transfer lessons learned in the American
market to its operations in China.
 |
| How does lifting of ‘Country-wise quota regime’ help Arvind Mills |
Questions
1.
Why has the ‘late corner’s strategy’ of Toyota
failed in China, though it succeeded in India?
2.
Why has Toyota failed to capture the Chinese
market? Why is it trailing behind its rivals?
CASE: IV DELVING DEEP INTO
USER’S MIND
Whirlpool is an American brand alright,
but has succeeded in empowering the Indian housewife with just the tools she
would have designed for herself. A washing machine that doesn’t expect her to
get ‘ready for the show’ (Videocon’s old jingle), nor adapt her plumbing, power
supply, dress sense, values, attitudes and lifestyle to suit American
standards. That, in short, is the reason
that Whirlpool White Magic, in just three years since its launch in 1999, has
become the choice of the discerning Indian housewife. Also worth noting is how
quickly the brand’s sound mnemonic, ‘Whirlpool, Whirlpool’, has established
itself.
Whiteboard
beginning
As a
company, the US-based white goods major Whirlpool had entered India in 1989, in
a joint venture with the TVS group. Videocon, which had pioneered washing
machines in India, was the market leader with its range of low-priced ‘washers’
(spinning tubs) and semi-automatic machines, which required manual supervision
and some labour. The brand’s TV commercial, created by Pune-based SJ
Advertising, has evoked considerable interest with its jingle (‘It washes, it
rinses, it even dries your clothes, in just a few minutes…and you’re ready for
the show’). IFB-Bosch’s front-loading, fully automatic machines, which could be
programmed and left to do their job, were the labour-free option. But they were
considered expensive and unsuited to Indian conditions. So Videocon faced
competition from me-too machines such as BPL-Sanyo’s. TVS Whirlpool was
something of an also-ran. The market’s sophistication started rising in the
1990s and there was a growing opportunity in the price-performance gap between
expensive automatics and laborious semi-automatics. In 1995, Whirlpool gained a
majority control of TVS Whirlpool, which was then renamed Whirlpool Washing
Machines Ltd (WMML). Meanwhile, the parent bought Kelvinator of India, and
merged the refrigerator business in 1996 with WMML to create Whirlpool of India
(WOI), to market both fridges and washing machines. Whirlpool’s ‘Flexigerator’
fridge hit the market in 1997. Two years later, WOI launched its star White
Magic range of washing machines.
Whitemagic
was late to the market, but WOI converted this to a ‘knowledge advantage’ by
using the 1990s to study the Indian market intensely, through qualitative and
quantitative market research (MR) tools, with the help of IMRB and MBL India.
The research team delved deep into the psyche of the Indian housewife, her
habits, her attitude towards life, her schedule, her every day concerns and
most importantly, her innate ‘laundry wisdom’.
If
Ashok Bhasin, vice-president marketing, WOI, was keen on understanding the
psychodynamics of Indian clothes washing, it was because of his belief that
people’s attitudes and perceptions of categories and brands are formed against
the backdrop of their bigger attitudes in life, which could be shaped by
broader trends. It was intuitive, to begin with, that the housewife wanted to
gain direct control over crucial household operations. It was found that
clothes washing was the daily activity for the Indian housewife, whether it was
done personally, by a maid, or by a machine.
The key
finding, however, was the pride in self-done washing. To the CEO of the Indian
household, there was no displacing the hand wash as the best on quality. And
quality was to be judged in terms of ‘whiteness’. Other issues concerned water
consumption, quantity of detergent used, and fabric care—also something
optimized best by herself. A thorough wash, done with gentle agility, was what
the magic was all about.
That
was the break-through insight used by Whirlpool for the design of all its
washing machines, which adopted a ‘1-2, 1-2 Hand Wash Agitator System’ to mimic
the preferred handwash technique. With a consumer so particular about washing,
one could expect her to be value-conscious on other aspects too. Sure enough,
WOI found the housewife willing to pay a premium for a product designed the way
she wanted it. Even for a fully automatic, she wanted a top-loader; this way,
she doesn’t fear clothes getting trapped in if the power fails, and retains the
ability to lift the shutter to take clothes out (or add to the wash) even while
the machine is in the midst of its job.
The target
consumer, defined psychographically as the Turning Modernist (TM), was decided
upon only after the initial MR exercise was concluded. This was also the stage
at which the unique selling proposition (USP)—‘whitest white’—was thrashed out.
WOI
first launched a fully automatic machine, with the hand-wash agitator. Then
came the deluxe model with a ‘hot wash’ function. The product took off well,
but WOI felt that a large chunk of the TM segment was also budget-bound. And
was quite okay with having to supervise the machine. This consumer’s identity
as a ‘home-maker’ was important to her, an insight that Whirlpool was using for
the brand overall, in every product category.
So WOI
launched a semi-automatic washing machine, with ‘Agisoak’ as a catchword to
justify a 10—15 per cent premium over other brand’s semi-automatics available
in India.
The
advertising, WOI was clear, had to flow from the same stream of reasoning. It
had to be responsive, caring, modern, stylish, and warm, and had to portray the
victory of the Homemaker. FCB-Ulka, which had bagged Whirlpool’s account in
March 1997 from contract (in a global alignment shift), worked with WOI to coin
the sub-brand Whitemagic, to break into consumer mindspace with the whiteness
proposition.
The
launch commercial on TV, in August 1999, scored a big success with its
‘Whirlpool, Whirlpool’ jingle…and a mother’s fantasy of her daughter’s clothes
wowing others. A product demonstration sequence took the ‘1-2, 1-2’ message
home, reassuring the consumer that the wash would be just as good as that of
her own hand. The net benefit, of course, was an unharried home life.
Second
Wave
Sadly,
the Indian market for washing machines has been in recession for the past two
years, with overall volumes declining. This makes it a fight for market share,
with the odds stacked against premium players.
Even
though Whirlpool has sought to nudge the market’s value perception upwards,
Videocon remains the largest selling brand in volume terms with its
competitively priced machines. Washers have been displaced by semi-automatics,
which are now the market’s mainstay (in the Rs 7,000-12,000 price range). In
fact, these account for three-fourths of the 1.2 million units the Indian
market sold in 2000. With a share of 17 per cent, Whirlpool is No. 2 in this
voluminous segment.
Whirlpool’s
bigger success has been in the fully automatic segment (Rs 12,000-36,000
range). This is smaller with sales of 177,600 units in 2000, but is predicted
to become the dominant one as Indian GDP per head reaches for the $1,000 mark.
With a 26 per cent share, Whirlpool has attained leadership of this segment.
That
places WOI at the appropriate juncture to plot the value curve to be ascended
over the new decade.
According
to IMRB data, Whirlpool finds itself in the consideration set of 54 per cent of
all prospective washing machine buyers, and has an ad recall of close to 85 per
cent. This indicates the medium-term potential of Whitemagic, a Rs20.5 crore on
a turnover of Rs1,042.8 crore, one-fifth of which was on account of washing
machines.
The
innovations continue. Recently, Whirlpool has launched semi-automatic machines
with ‘hot wash’. The brand’s ‘magic’ isn’t showing signs of wearing off either.
The current ‘mummy’s magic’ campaign on TV is trying to sell Whitemagic as a
competent machine even for heavy duty washing such as ketchup stains on a white
tablecloth.
The
Homemaker, of course, remains the focus of attention. And she remains as
vivacious, unruffled, and in control as ever. The attitude: you can sling the
muckiest of stuff on to white cloth, but sparkling white is what it remains for
its her hand that’ll work the magic, with a little help from some friends… such
as Whirlpool.
Questions
1. What product strategy did WOI adopt? And why?
Global standardisation? Local customisaton?
2.
What pricing strategy did WOI follow? What,
according to you, could have been the appropriate strategy?
3.
What lessons can other white goods manufacturers
learn from WOI?
CASE V: CONSCIENCE OR COMPETITIVE EDGE
The plane touched down at
Mumbai airport precisely on time. Olivia Jones made her way through the usual
immigration bureaucracy without incident and was finally ushered into a waiting
limousine, complete with uniformed chauffeur and soft black leather seats. Her already
considerable excitement at being in India for the first time was mounting. As
she cruised the dark city streets, she asked her chauffeur why so few cars had
their headlights on at night. The driver responded that most drivers believed
that headlights use too much petrol! Finally, she arrived at her hotel, a black
marble monolith, grandiose and decadent in its splendour, towering above the
bay.
The
goal of her four-day trip was to sample and select swatches of woven cotton
from the mills in and around Mumbai, to be used in the following season’s
youth-wear collection of shirts, trousers, and underwear. She was thus treated
with the utmost deference by her hosts, who were invariably Indian factory
owners or British agents for Indian mills. For three days she was ferried from
one air-conditioned office to another, sipping iced tea or chilled lemonade,
poring over leather-bound swatch catalogues, which featured every type of
stripe and design possible. On the fourth day, Jones made a request that she knew
would cause some anxiety in the camp. “I want to see a factory,” she declared.
After
much consultation and several attempts at dissuasion, she was once again
ushered into a limousine and driven through a part of the city she had not
previously seen. Gradually, the hotel and the Western shops dissolved into the
background and Jones entered downtown Mumbai. All around was a sprawling
shantytown, constructed from sheets of corrugated iron and panels of cardboard
boxes. Dust flew in spirals everywhere among the dirt roads and open drains.
The car crawled along the unsealed roads behind carts hauled by man and beast
alike, laden to overflowing with straw or city refuse—the treasure of the
ghetto. More than once the limousine had to halt and wait while a lumbering
white bull crossed the road.
Finally,
in the very heart of the ghetto, the car came to a stop. “Are you sure you want
to do this?” asked her host. Determined not be faint-hearted, Jones got out the
car.
White-skinned,
blue-eyed, and blond, clad in a city suit and stiletto-heeled shoes, and
carrying a briefcase, Jones was indeed conspicuous. It was hardly surprising
that the inhabitants of the area found her an interesting and amusing subject,
as she teetered along the dusty street and stepped gingerly over the open
sewers.
Her
host led her down an alley, between the shacks and open doors and inky black
interiors. Some shelters, Jones was told, were restaurants, where at lunchtime
people would gather on the rush mat floors and eat rice together. In the doorway
of one shack there was a table that served as a counter, laden with ancient
cans of baked beans, sardines, and rusted tins of fluorescent green substance
that might have been peas. The eyes of the young man behind the counter were
smiling and proud as he beckoned her forward to view his wares.
As
Jones turned another corner, she saw an old man in the middle of the street,
clad in a waist cloth, sitting in a large bucket. He had a tin can in his hand
with which he poured water from the bucket over his head and shoulders. Beside
him two little girls played in brilliant white nylon dresses, bedecked with
ribbons and lace. They posed for her with smiling faces, delighted at having
their photograph taken in their best frocks. The men and women around her with
great dignity and grace, Jones thought.
Finally, her host led her up a precarious
wooden ladder to a floor above the street. At the top Jones was warned not to
stand straight, as the ceiling was just five feet high. There, in a room not 20
feet by 40 feet, 20 men were sitting at treadle sewing machines, bent over
yards of white cloth. Between them on the floor were rush mats, some occupied
by sleeping workers awaiting their next shift. Jones learned that these men
were on a 24-hour rotation, 12 hours on and 12 hours off, every day for six
months of the year. For the remaining six months they returned to their
families in the countryside to work the land, planting and building with the
money they had earned in the city. The shirts they were working on were for an
order she had placed four weeks earlier in London, an order of which she had
been particularly proud because of the low price she had succeeded in
negotiating. Jones reflected that this sight was the most humbling experience
of her life. When she questioned her host about these conditions, she was told
that they were typical for her industry—and most of the Third World, as well.
Eventually,
she left the heat, dust and din to the little shirt factory and returned to the
protected, air-conditioned world of the limousine.
“What
I’ve experienced today and the role I’ve played in creating that living hell
will stay with me forever,” she thought. Later in the day, she asked herself
whether what she had seen was an inevitable consequence of pricing policies that
enabled the British customer to purchase shirts at £12.99 instead of £13.99 and
at the same time allowed the company to make its mandatory 56 percent profit
margin. Were her negotiating skills—the result of many years of training—an
indirect cause of the terrible conditions she has seen?
Once
Jones returned to the United Kingdom, she considered her position and the
options open to her as a buyer for a large, publicly traded, retail chain
operating in a highly competitive environment. Her dilemma was twofold: Can an
ambitious employee afford to exercise a social conscience in his or her career?
And can career-minded individuals truly make a difference without jeopardising
their future? Answer her.
www.answersheets.in
info.answersheets@gmail.com
info@answersheets.in
+91 95030-94040
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