Ti_Cycles_Case_Solution

TI CYCLES: NEW PRODUCT STRATEGY (A) presents analyses of the management case by academicians and practitioners DIAGNOSES ANALYSIS CASE ANALYSIS I Rakesh Basant Professor, Economics Area Indian Institute of Management, Ahmedabad e-mail: rakesh@iimahd.ernet.in T The January-March 2003 (Vol 28 No 1) issue of Vikalpa had published a management case titled “TI Cycles: New Product Strategy (A)” by Mukund R Dixit and Abhinandan K Jain. This issue features four responses on the case by Rakesh Basant, Salma Ahmed and Ashfaque Khan, Atanu Ghosh, and Manmohan Rahul and Shalini Rahul. here are a few points about the context of TI Cycles that need to be recognized explicitly. The company is operating in a mature industry where competition is very high. Product innovations are few and incremental. A long run product life cycle operates for the two core models – ‘specials’ and ‘standards.’ While the market has matured for both the models, the level of maturity is more for the ‘standards’ than for the ‘specials’ and the market for the latter is growing more rapidly. Incremental product innovations (that are usually quickly imitated) expand the growth phase for the ‘specials’ from time to time. Ability to introduce new variants of existing models and somewhat different models quickly is critical to retain market share. Given the maturity of the industry and product life cycles, manufacturing costs (prices), the ability to undertake incremental product innovations (design changes), and the speed to market are critical for maintaining competitiveness. Followers are often able to gain a lead over the first movers in specific segments. The drivers of demand essentially are the rates of growth of income and its distribution. In such a situation, the strategy of TI Cycles, especially the one related to new product development, needs to be formulated in the context of the competencies the company has acquired over the years and its access to complementary assets. AT PRODUCT DEVELOPMENT COMPETENCIES AT TI CYCLES The company was set up with a foreign collaboration that involved technology transfer. Over a period of time, it acquired the capability of usefully absorbing and adapting the technology acquired from outside. Development of the capability to absorb foreign technologies was not restricted to TI Cycles alone but to other group firms as well. VIKALPA • VOLUME 28 • NO 3 • JULY - SEPTEMBER 2003 113 113 While the company did a good job of absorbing foreign technologies, it did not focus on R&D activity in any significant manner to build upon the technologies acquired from outside. As a result, it was not able to keep pace with technological developments in the developed countries. Its participation in the exports market and the associated learning remained restricted to low-end cycles. Moreover, no R&D effort seemed to be taking place to explore new materials that are increasingly being used in bicycle manufacturing world-wide. Consequently, the technology gap between TI Cycles and developed country firms was so large that the company did not have the design and manufacturing capabilities to make the middle-and upper-end bikes for these markets. An interesting feature of TI Cycles was that product management, product development, manufacturing, and purchase departments under the overall guidance of the General Manager-Marketing and the Vice President jointly shared the new product design and introduction activity. Such cross-functional teams are an important vehicle for developing products that are marketable (as they are based on consumer preferences and feedback) and manufacturable at low cost. The product design was, therefore, in line with attributes preferred by the consumers and in-house delays in ramping up due to manufacturability-related problems were avoided. The skills required to fully exploit this process of product development seemed to be available with the company. One apparent gap in this process of new product development was that the manufacturing segment was not involved at the product design stage. The interaction between manufacturing, purchase, and product development department began at the prototype development stage. More interactions at the design stage would prove useful to enhance manufacturability and improve time to market. COMPLEMENTAR ARY ACCESS TO COMPLEMENTARY ASSETS Often, well-designed products do not add to the competitive advantage of the innovating firms because they do not have access to good complementary assets. These assets include competitive manufacturing, marketing, distribution, brands, etc. How was TI Cycles placed in terms of complementary assets vis-a-vis its main competitors' In terms of brand, TI Cycles was not disadvantaged vis-a-vis Hero and Atlas. The critical disadvantage emanates from relatively inferior manufacturing capabilities. While the company had gone through an exercise to improve manufacturing-related practices, its cost of manufacturing was still higher than its competitors. Consequently, it was not able to compete on price especially in the standards segment. One of the reasons for lower manufacturing costs of its competitors was that they had access to low-cost, decentralized manufacturing facilities in North India. Hero, for example, had about 100 ancillary units dedicated to its production. These linkages with cycle parts manufacturers had been nurtured and developed over the years and were difficult to replicate. Nonetheless, most of the cycle parts are now commodities and TI Cycles needs to actively explore the possibility of utilizing this geographically bound pool of capabilities based on specialized decentralized manufacturing. From this pool, they may need to work closely with some vendors to develop longterm, mutually rewarding relationships. There seemed to be some gaps in the company’s distribution network as well. The dealers were not well equipped to deal with after-sales service and repairs particularly for the bikes in the ‘specials’ segment. Unfortunately, the dealers had more interest in selling ‘special’ category cycles rather than the ‘standard’ category bikes. It is not entirely clear why the dealers did not favour the ‘standard’ bike. Apparently, such bikes did not bring the customer to the stores, while fancy bikes did.* The dealers, especially in smaller towns, were not working exclusively for TI Cycles. Thus, distributionrelated complementary assets in such towns were becoming non-specialized. These dealers were ill-trained to deal with after-sales service problems. The idea of specialized distribution assets like “cyclinics” would make business sense only in larger towns and there too one cannot have many of them. There is no substitute for better training for dealers to take care of technical issues that crop up at the point of sale and after-sales service. Such training is all the more important because assembly is done at the dealers’ level and inadequate training can lead to faulty assembly that would result in more postsale problems. Dealers are also the major source of information about the problems faced by the customers. Presently, TI Cycles is not collecting data on such problems on a regular basis. Such data can be very useful for training as well as new product and process design. * The case does not provide information on differences in dealers’ margins between the two types of bikes. TI CYCLES: NEW PRODUCT STRATEGY (A) 114 114 The company’s loss of market share in the domestic market especially in the ‘standards’ segment was primarily due to its inability to compete on prices. However, it was competitive in a few ‘specials’ categories like SLRs and MTBs, while its market share was relatively low in other ‘specials,’ namely the bicycles for kids and juveniles. Overall, its market share in the ‘specials’ category as a whole was the highest among all competitors. This partly also explained its relatively higher market share in larger towns where such bicycles are predominantly used. It is critical to find out if the larger market share in ‘specials’ is due to better quality or a higher brand image, assuming that TI Cycles had a cost disadvantage of about 10 per cent in this category. In the same vein, it is important to understand the drivers of cost advantage of the Chinese firms in the international market. Understanding the source of this competitive advantage is critical for at least two reasons. First, TI Cycles is only competitive in these segments and understanding of its determinants may help identify strategies for enhancing competitiveness in other segments as well. Second, ‘specials’ also happens to be the growth segment and a better understanding of the sources of competitiveness in this segment will facilitate faster growth and better market penetration in a growing segment. An interesting aspect of Hero Cycles’ competitiveness is that it is able to manage a relatively high market share both in ‘standards’ and ‘specials’ segments. Except for SLRs and MTBs, Hero Cycles is significantly ahead of TI Cycles in the ‘specials’ category. Besides, the sales volume of ‘standards’ by Hero Cycles is higher than that of TI Cycles. This means that while Hero Cycles is able to simultaneously compete in the ‘specials’ and ‘standards’ market, TI Cycles is not able to complete simultaneously in the two segments. This raises the issue of reaping some synergies of producing the two categories of bicycles together which TI Cycles is not able to do while its major competitors (especially Hero Cycles) are able to do. These synergies may emanate from economies of scope and scale in purchasing, manufacturing, and distribution. This issue needs to be analysed to gain more insights into the sources of competitiveness of the competitors of TI Cycles. solidating TI Cycles’ position in the existing markets and product groups, the long-term perspective should be to expand markets and get into more demanding products. In the short run, TI Cycles should focus on fine-tuning its product development process and on manufacturing to reduce costs and upgrade its relationships with dealers and vendors. The company has done well to avoid the ‘over the wall’ syndrome in the product development process. However, it can probably still improve the product development cycle, especially by involving manufacturing department at the product design stage. This will improve time to market. The product development group should also systematically analyse customers’ complaints through cross-functional teams. The recurring complaints should find space in the Saturday meetings. These may provide useful inputs for product design and even process changes. The company needs to gear up the organization for price competition but deliver good quality at the same time. A sharper focus on manufacturing is a must to achieve this objective. Some efforts in this respect have already been made but there is a need to do more in this area. Two initiatives may be useful in this regard. One is outsourcing, an area the company is already working upon. The other is to re-evaluate the internal manufacturing systems especially from the perspective of reaping synergies in the production of ‘standards’ and ‘specials’ and different categories of ‘specials.’ Since many variants of the same bicycles are produced, significant potential may exist to streamline procurement, production, and dispatch to reap variety of synergies. Finally, the company needs to work more closely with its dealers and vendors. Apart from providing better technical expertise, the focus should be on building relationship capital with the dealers as well as vendors. Its major competitor, Hero Cycles, seems to derive a major advantage from such capital. As these relationships mature, the critical customer data would automatically start flowing in and help in the product design and manufacturing process. In the long run, the company must try to exploit the synergies between domestic and export markets. This would necessarily mean production of medium/high range of bicycles for the developed country markets. R&D activity will need to be geared up to enhance the company’s absorptive capacity of new technologies to penetrate the high-end markets in the West. A cursory STRATEGIC IMPLICATIONS SOME STRATEGIC IMPLICATIONS On the basis of the analysis so far, a few elements of shortterm and long-term strategy seem to emerge. While the short-term measures are focused on improving and conVIKALPA • VOLUME 28 • NO 3 • JULY - SEPTEMBER 2003 115 115 reading of business articles would suggest that a R&D focus on new materials may be useful. Significant upgradation of product development and manufacturing process (suggested above as short-term initiatives) would also enhance the absorptive capability and help the company buy, transfer, and adopt better technologies. Moving up the value chain in the exports markets can partly be facilitated by higher exposure to these markets. The company’s earlier efforts to make that tran- sition were thwarted among other things by a fluctuating exchange rate. Therefore, as a short run measure, the company should also lobby for some depreciation of the rupee. Such depreciation might increase volumes of exports for all suppliers and make the industry more vibrant. It has been argued that part of the competitive advantage of China emanates from strategically devalued currency. Of course, the Chinese manufacturers often pay more attention to manufacturing systems than their Indian counterparts. ANALYSIS CASE ANALYSIS II Salma Ahmed Senior Lecturer Logistics and Information Systems Aligarh Muslim University Aligarh e-mail: salmaahmed6@rediffmail.com Ashfaque Khan Manager (S&M) Kale Consultants Limited New Delhi e-mail: Ashfaque_Khan@kaleconsultants.com changes. The issue to resolve is increasing profits through increased production and market share. The company initiated many changes such as change at manufacturing premises, work culture, spare parts management, etc., yet it was relegated to the second position. It seemed that incremental changes were not delivering the desired results. I n the year 1951, TI Cycles in collaboration with Her cules Ltd & Motor Company of UK set up a plant in Ambattur in the suburb of Chennai to produce and sell complete bicycles. The company was organized into functions each with a well-defined responsibility. It also had a separate R&D Department which catered to the need of new product development. New product design was handled by the General Manager – Marketing and Vice President along with representatives from Product Management, Product Development, Manufacturing, and Purchase Departments. The company undertook the manufacture of standard items designed by its collaborator and its first venture was a product named Hercules. Later, with the perceived market shift and/or competition, it moved to producing premium cycles. This move was also an attempt to expand the market. Its sales rose rapidly. On the other hand, related developments led to a situation where the company began losing its market standings: • Rise of competition (Atlas, Avon, Hero). • Introduction of low cost scooterette. • Lower prices of competitors. • Competition from moped category. • Lock-outs at its factories. • Lack of geographic presence. However, what is significant is that market opportunity exists which is indicative of increasing trends and which needs to be tapped intelligently in the wake of the KEY ISSUES An analysis of the situation at TI Cycles reveals a number of issues and key questions that need to be addressed. New Product Development At TI Cycles, a separate R& D Department undertook the task of product upgradation, development of prototype as well as the development of the product. Concept testing, prototype testing, and sample testing were undertaken in stages with different sets of groups. In short, it had a reasonably sound system in place for new product development as well as a comprehensive and well-integrated team for development of new products. Target Product Category and Target Market It would be advisable for the company to divide the market into two tiers: • Tier I: The basic offering would have the deciding factors as price, loading capacity, riding ease, and ease of repair. • Tier II: The attributes would be acceleration, design, TI CYCLES: NEW PRODUCT STRATEGY (A) 116 116 styling, and re-sale value. Though it seemed to have got the categories correctly, it did not identify the attributes which characterized the tiers. In the present scenario, two broad categories of product are in demand-standardized and customized. Products for the former category would be sturdy, low-priced, and offered with standard/basic features. Products for the second category would be offered with various multiple options and premium-priced. The market could be segmented into two: • Office goers, workers, and low income group who seek value for money. Youth, trendy, middle and high income group who could be classified as the “in-generation.” Each product category would have its own supply chain methodology. • Dealer Management Successful dealer management rests on the number of dealers, loyalty of dealers, and the length of the channel. TI Cycles has only a handful of dealers vis-à-vis its closest competitor–Hero Cycles–which has 3,500 dealers. In such a set up, customer contact would be less thereby affecting feedback. Further, CRM exercise cannot be undertaken effectively. An effective role is played by dealers in enhancing the image of a company in the minds of the consumer. This is gravely missing. Dealer loyalty for the company was not evident or dealers stocked other brands as well. In addition, dealers also stocked auto-ancillaries and consumer durables. Dealers are the final point of contact with the customers. They are major influencers in the purchase decision. Therefore, it is necessary to enhance this level of commitment. There is a definite scope for better bonding with the dealers in the company framework. The only positive move by the company is the implementation of cyclinics which are company-owned and have definitely increased the customer perception of the organization. Supply Chain Management Efficient supply chain management is a critical issue which is found lacking in TI Cycles’ present system of operation. Demand Management Accurate prediction of demand is very critical for the success of a company. The situation at TI Cycles reveals that there was excess in-process inventory in the plants. The company produces two broad categories of cycles: standardized and customized. For standardized cycles, demand is more or less certain, the features are common, and the dealers can maintain a certain stock of the item even in an assembled state. For customized cycles, ascertainment of demand for different product options is somewhat different. Therefore, the dealers should maintain such products preferably in CKD condition to be assembled later on at their level. Alternatively, the company can develop an efficient communications system to enable dealers to communicate orders directly to the factory which can assemble and deliver the product to the customer within a short period of time. Though this would mean increasing reliance on IT, this would also enhance the accuracy of sales prediction. For the ‘standard’ cycles, cost is the critical factor influencing the decision to purchase. Lowering costs throughout the supply chain–through mass production, economy in transportation, inventory, and increased volume would go a long way in ensuring success for the company. However, for the customized product, responsiveness of the supply chain would influence the decision to purchase. VIKALPA • VOLUME 28 • NO 3 • JULY - SEPTEMBER 2003 Manufacturing Management Hero Cycles outsourced most of its products to ancillary manufacturers while TI Cycles undertook long production runs to produce complete products thereby increasing in-process inventory. The company shifted from batch process to modular process design. However, it could adopt flexible equipments and machines which would support multiple parts being produced using the same set of equipments amounting to a reduction in cost. However, it still resorted to the old system of complete production run bringing inefficiency in the system. It should, therefore, adopt ancillarization as a strategy to gain country-wide presence. Level of Integration New product development starts with the generation of an idea. An idea may come up from almost anywhere— customer, vendor, employee or even competitor. Most organizations have a formal system in place to generate and evaluate a product idea. Therefore, it is imperative for a company to integrate every entity in the supply chain. However, all product ideas are subject to screening and evaluation. TI Cycles also undertakes concept development and testing. This is a positive move made 117 117 by the company. In a multi-product organization, activities should be more process-based than function-based. TI Cycles created functional silos where responsibility was well defined and distinct. The company should not only move towards functional integration or internal integration (integrate marketing, sourcing, product development, quality, etc.) but should also promote external integration, i.e., integrating with dealers and customers too. An integrated approach would be a better fit for such an organization where change is the order of the day and a new product idea at any point in the supply chain can be very conveniently tapped. TI Cycles should form a network of relationship communicating, interacting, and making integrated decisions. • • Expanding Market Share TI Cycles could adopt the following strategies for increasing market share: from products: • Shift from standardized to customized products: Though the company has a ‘delayed logistics’ in place (i.e. CKDs at the dealers’ end), the same could be extended to designs, colours, accessories (more at the urban centres than rural). This would not only reduce the supply chain costs but in the process would lead to an increase in the sales of accessories. Increasing areas • Increasing sales in rural areas: The company’s largest market is South India. Given the economic development (i.e. higher growth rates) in the southern states, people are more likely to buy mopeds/motorcycles, scooters, etc. Hence, demand for cycles would come from the hinterland and from North and East India. Even its initial thrust to the rural areas • • • would be through the ‘standards’ category but given the rise of disposable income in the rural sector as well, ‘specials’ would also co-exist. Increasing areas: Increasing sales in urban areas: ‘Sports, health’ are the bandwagons to jump on. target group: Expanding the target group: The cycle manufacturers have been focusing on the market in the category of 5 + years depending on the demographic/ psychographic profiles. Given this, the market could be extended to ‘toddlers’ and old-age/retirees. Toddlers around the age of three years could start using the cycles (with the requisite changes). Similarly, the old people at the urban centres could be targeted by citing health reasons. Both the target segments require a customized product. Similarly, there is a need to expand the market in countries like Bangladesh, Nepal, and Bhutan which given the similar demography at the rural/semi-urban centres would require a ‘no-frills’ product similar to the ‘standards’ product of TI Cycles. Contract manufacturing: Though China has been the leader in manufacturing cycles, TI Cycles could also explore the possibility of manufacturing cycles for the leading cycle manufacturers of the world. Financing: Though a cycle costs around Rs 2,000 - Rs 3,000, the company could arrange for loans through banks or credit societies for the rural sector to give a boost to its sales. Spare-parts: Spare-parts: From the experience of the car manufacturers, the profit for these companies would be mostly from spare-parts sales and servicing. Though TI Cycles has rightly initiated ‘cyclinics,’ there is a need to expand the network to other products as well. ANALYSIS CASE ANALYSIS III Atanu Ghosh Associate Professor Shailesh J Mehta School of Management Indian Institute of Technology Mumbai e-mail: atanu@iitb.ac.in T 118 I Cycles was facing problems of stagnant sales in 1996-97, driven by falling export volume, shift in consumer preferences, increased competition in bicycle market, and relatively weak distribution network in the domestic market. The company started in 1951 with a fully integrated plant for manufacturing of parts to assembly of final product without any outsourcing of components. Though it established its name and reputation for high quality, strong, and durable product, it lost its status of largest TI CYCLES: NEW PRODUCT STRATEGY (A) 118 producer of bicycles to Hero Cycles, a competitor from North India. Hero Cycles built leadership positions primarily on the basis of lower prices which was possible due to outsourcing of parts from independent manufacturers and dedicated units promoted by them. TI Cycles had a 10 per cent unfavourable cost differential against other key competitors due to having an integrated plant and also higher wages. One of the clear options for TI Cycles was to move from in-house manufacturing to outsourcing of parts to cost-effective, independent manufacturers of parts and retaining quality assurance, final assembly, and painting at their own plant, particularly, for the price-sensitive range of ‘standard’ products. This would pose a clash with family values of exhibiting human consideration in treating people in managing its business, unless the loss of jobs could be protected by increase in sales volume of ‘specials’ category of premium-priced products that could absorb in-house cost structure. This would have still been a minor drifting from values than to cause disaster for the whole organization and its employees. The availability of designs and drawings from its collaborator Hercules Cycles & Motors, UK, probably resulted in lack of own efforts in designing and innovating new products. It introduced “specials” category with products of sleek, wire break, multiple colour options at premium prices in 1969 as a leader, but became a follower of the market leader Hero Cycles while introducing “Street Cat” in the sub-category of MTBs. With the changed market environment both in domestic and international market, TI Cycles has no option other than to focus on domestic market in a more planned manner. It is quite clear from the facts that the decline in total demand in major EU markets by 6 per cent, total import to EU by 20 per cent, import from India by 40 per cent, and falling import share for TI from 57 per cent to 45 per cent was indicative of change in consumer preferences in EU. Therefore, it was unlikely to improve TI Cycles’ position by any additional efforts. The other major threat to dissuade the company from focusing on international market in general was the cost competitiveness of the Chinese products (40-60 % cost disadvantage in some categories like Kids and MTBs). TI Cycles could possibly identify overseas markets for ‘standard’ category where the total cost of ownership of its products could be the lowest compared to Chinese products due to favourable differential cost of transportation, logistics, and import duty rate. This was possible VIKALPA • VOLUME 28 • NO 3 • JULY - SEPTEMBER 2003 as its price for such products was only 10 per cent higher than Chinese products. The striking change in consumer preference in the domestic market is reflected in the gradual shift from one standard model for office goers and workers to many variants (such as workhorse, sports and racing, luxury) targeted to different uses and user segments. With the change in manufacturing system from batch process silos to five modules, the problems associated with increase in number of models, in-process inventory, long manufacturing lead time, inaccurate delivery, and poor tracibility could be minimized. In order to improve its performance in these areas, TI Cycles should have deployed information technology with ERP and SCM to integrate its information system not only within the organization but also with its supply chain. The penetration of bicycle being at a very low level compared to many other countries at the same level of economic development, there is scope for market development. The growth rate of 26 per cent in 1994-95 and 10.8 per cent in 1995-96 is indicative of potential demand. The market shareholding by the bicycle manufacturers shows that TI Cycles has lagged behind the competitors in all the regions except in the South. The Northern and Eastern regions that accounted for 57 per cent of domestic market were not focused adequately and developed successfully to yield benefits. Similarly, the company failed to garner decent market shares in rural and small towns that have close to 70 per cent of market demand. It is evident that the company’s product mix was not in synch with the current industry trend. The ‘specials’ category was primarily a product for urban market which generated only 30-35 per cent of the total demand. Therefore, concentration on that product to the tune of 50 per cent of its volume deprived it from generating higher volume of business in ‘standards’ category from rural areas and small towns. That could have provided more cost advantage in an integrated plant of high capacity of production volume. With the image created as a producer of high quality durable product, the company is in a position to launch mopeds/scooterettes in the domestic market to keep pace with current trends. It may even be easier for it to find a technology provider as collaborator and come up with the products with technical superiority. If, for paucity of resources, TI Cycles is forced to sustain its current level of business with more focus on ‘specials’ rather than looking at any growth avenues, it 119 119 still needs to examine its market responsiveness. For products of ‘specials’ category with large number of variants and many user groups, it may be prudent to capture current demand pattern through POS data which could be extremely useful to study the trends, offer products to market in a more responsive manner, reduce inventory level of slow/non-moving products, and divert attention to products in demand. Linking the supplier in the information network would further improve total responsiveness of the network to market requirements. ANALYSIS CASE ANALYSIS IV Manmohan Rahul Assistant Professor Institute of Management Studies Dehradun e-mail: mmarahul152@yahoo.com Shalini Rahul Assistant Professor Institute of Management Studies Dehradun I Cycles is a typical example of a traditional Indian firm that has taken its share of pie during India’s post-Independence economic growth in a virtually monopolized market and is now unable to keep a control on its declining market share and profits due to many hugely successful entrepreneurial establishments. TI Cycles was started with an honest zeal and dedication by the Chettiars family in a suburb of Chennai and it became one of the leading and known cycle manufacturers in India. The company’s growth can be largely explained by the dominance of time in 1950s when postIndependence era opened new opportunities for business houses in all infrastructural development. The need gap was large in rural and urban areas and market was under-developed. The basic necessities of life were unavailable to 80 per cent of the consumers who formed a part of rural India. The basic mode of transport during that period was primarily a cycle and it still remains the same even after 55 years of rural development. The gap as shown in Figure 1 shows that it is largely purchased by people in rural areas as compared to urban customers. Figure 1: Rural Vs Urban Growth rural urban T SHIFT IN PREFERENCE IN DOMESTIC MARKET The cash cow for TI Cycles remained the ‘standard’ brand for long with ‘special’ category adding good support to it. With the entry of Hero Cycles, Avon, and Atlas Cycles from the Northern India-based entrepreneurs, the cycle scenario in India changed dramatically, TI Cycles being the prime sufferer. The introduction of low-cost and load bearing capacity cycles being manufactured by Atlas, Hero Cycles, and Avon caught the attention of the people. These companies were quick to gauge the gap in the youth and children segment and were successful in bringing out cycles targeting these segments. TI Cycles somehow always adopted a second lead and in this process lost the crucial timing and market share. The company, therefore, should upgrade its R &D cell and ensure that the marketing cell also adopts a proactive approach. COMPETITION Early seventies saw TI Cycles’ ‘Hercules’ brand doing very well in the market and adding value and credibility to its total sales. In course of time, however, the company’s process of innovation got derailed and this aspect was not taken up seriously. Other entrepreneurs perceived this gap in domestic market and came up with innovative cycles in a big way capturing the market share of TI Cycles. The owners of Hero Cycles, based in Ludhiana, started as a low-cost cycle manufacturer and, within a short span of time, Ludhiana was turned into one of the largest producers of cycles and machine parts. Atlas and Avon also capitalized on this opportunity and outsourced nearly all cycle parts from Ludhiana-based manufacturers. This created a difference of nearly 10 per cent in cost which was noticeably big for customers. TI CYCLES: NEW PRODUCT STRATEGY (A) Number of cycles sold 8000 7000 6000 5000 4000 3000 2000 1000 0 1985- 1986- 1987- 1988- 1989- 1990- 1991- 1992- 1993- 1994- 1995- 199686 87 88 89 90 91 92 93 94 95 96 97 year 120 120 Late eighties and early nineties were also the period when 50cc two wheelers were introduced, popularly known as Mopeds, Scooterette, etc. Hero Mopeds with the name of Panther and Pacer and Kinetic’s Luna were very popular in the market and were very successful for a decade. Hero as a brand got established in the market and the company’s promotional activities benefited the company in both the cycle as well as the two-wheeler sector. Reaching Domestic Consumer Though TI Cycle’s representation in towns and cities is adequate, it needs to evaluate the sales target achievement. It can also categorize the dealers according to their performance and find out the reasons for the shortfall in sales as this will help the company to get aligned with its sales forecast and production. Due to change in customer preference, the company is facing a decline in demand for the ‘standard’ category of cycles. It can undo this by introducing special credit schemes in this category. This will help small buyers, especially in rural areas, to get a cycle at minimal cash as down payment who can then pay the loan in small installments of Rs 100 per month. The company may also introduce a scheme to its dealers to make compulsory purchase of ‘standard’ along with ‘special’ in any pre-specified ratio by the company. The initial resistance may be high but can be handled if properly communicated by the sales representatives. The authorized spare parts sales and service showroom is an innovative idea and must be pursued in all important towns of India. company already has a strong base of activities, which if revamped and strengthened, could be positioned as distinctive from the competitor. Some of these features are: Strong dealer network. • • Number of sales representatives. • Brand awareness among customers. • Variety of models introduced in the market. On the other hand, the company would have to definitely improve upon communication strategy (advertisements, sales promotion, and publicity) and support with dealers. The first step that the company could take is to re-launch the cycle based on a concept. Being the oldest player in India, it could create a feeling of nationality among the users of ‘standard’ category and position its cycle as the ‘cycle of the nation.’ This in a way reflects the values of the company as well as how it has incorporated the suggestions and has taken care of customers’ complaint over a period of time. In case of ‘special’ category, being already the leader, it needs to sustain this position and has to be quick in addressing the need for change. Negotiating with dealers to keep the company’s cycles as an exclusive brand would indeed support the differentiated player image. To supplement this, it can also open exclusive showrooms for their products in cities. Regarding exporting cycles, the company should target South America, Africa, and East Asian countries for better results. REALIZATION TIME FOR REALIZATION Indian cycle industry is facing a crisis presently with direct threat from the ever-growing low cost Chinese cycle manufacturers. By comparison, Chinese products are smoother in looks and shape and innovative in design. The price difference can be up to 30 per cent which is very large as compared to other Indian cycle manufacturers. Moreover, cycles are considered derogatory by the youngsters in urban areas and are only owned either by people of very lower income group or kids. TI Cycles needs to re-evaluate the current status dogma of Indian consumers and re-establish the concept of cycles in consumers’ mind. The primary aim for cycle companies now is not only sales maximization but also changing consumer mindset. Strategies for Competitive Advantage TI Cycles is now facing a location disadvantage as compared to Hero Cycles, Avon, and Atlas as these are located in North India from where they outsource their cycle parts. Out of these three, Hero Cycles has gained the maximum advantage becoming a low-cost leader in cycle industry. The other two players, Atlas and Avon, though having a strong presence, are basically emulators or followers of Hero and TI Cycles. TI Cycles should follow a differentiation strategy on features that can be perceived as unique by customers. The A definition is the enclosing a wilderness of idea within a wall of words. Samuel Butler VIKALPA • VOLUME 28 • NO 3 • JULY - SEPTEMBER 2003 121 121 Some books are to be read only in parts... some to be read wholly with diligence and attention. .rancis Bacon covers reviews of current books on management BOOK REVIEWS DEVELOPMENT: READINGS IN HUMAN DEVELOPMENT: CONCEPTS, MEASURES, AND POLICIES FOR A DEVELOPMENT PARADIGM PARADIGM Fukuda-Parr, Kumar, Fukuda-Parr, Sakiko and Shiva Kumar, A K (eds.) New Delhi: Oxford University Press, 2003, pp 370, Rs 675 T THEMES Human Development .iscal Reforms Economic Development his book of readings offers a splendid intellectual fare on the concept, design, and use of the term ‘human development’ (HD) as it has gained currency since its adoption by the United Nations Development Programme (UNDP) in the late 1980s as a part of its global role and responsibility. The contributors to the volume have all played major roles in the evolution of concepts and measurement of HD, examination of the policy implications of the HD approach, and institutionalization of the Human Development Reports (HDRs). HDRs are now globally recognized as a crucial aid in measuring, monitoring, and managing socio-economic development. The rationale for treating human beings as ends for social development is amply provided in the first section of the book which is devoted to conceptual foundations. The contributors to this section include outstanding social scientists such as Mahbub ul Haq, Amartya Sen, and Paul Streeten who carved out ideas and approaches in HD and presented their relevance in the contemporary global society against the backdrop of prevalent economic theories and prescriptions. The philosophical foundation of the new approach lies in the concern for the human being. Human capability has traditionally been treated as a commodity relevant for production of goods/services that contribute to the values of GDP/GNP as the manifestation of a society’s economic standing and development. This view is challenged by the HD-oriented scholars. Social science, they say, stands for enrichment of human life. Human capability is a resource for pursuit of such enrichment of life in terms of what a human being values most. Human beings should have freedom and opportunities to choose a way of life. Poverty implies denial of choice. Those who are denied freedom of choice for their gender, race, etc. deserve special attention in development discourse and efforts. Freedom of choice for this purpose is not confined to economic freedom (access to material resources). It extends to participation in decisions governing one’s situation and free- VIKALPA • VOLUME 28 • NO 3 • JULY - SEPTEMBER 2003 123 123 dom to act as an equal citizen. As a comprehensive developmental approach, HD embraces economic, social, and political freedom and rights for the deprived. This HD approach and its social dynamics are competently and lucidly examined in detail in the nine chapters of the first section. It became the driving force of the HDR which was launched by UNDP in 1990 and has since served as signal of relative socio-economic health among the states across the world. HDRs, in turn, have cumulatively led to refinement, modifications, and adaptations in the conceptual base of the HD approach. The measure of the state of human development for a state, region or its subset is computed to yield a Human Development Index (HDI). The authors have shown how the annual HDR-HDI exercises have led to progressive realization of HDI as too simple for its larger purpose. They have stressed the need to deal with a variety of complex yet relevant factors such as the social context of an economic value, current vs. future value of resource-allocation, and the grounded politics of human rights or poverty reduction. The second section of the book is devoted to issues on measurement of HD and construction of HDI. In the face of recognition of HD being a product of a large variety of socio-economic forces, HDI has been primarily computed as a composite measure of achievement in three aspects: longevity, education, and income as a sign of command over resources needed for a decent living. Problems relating to methodology, data availability and comparability, statistical rigour, etc. are addressed at length by various contributors. The merits of aggregation and disaggregation of HDI are examined in their statistical as well as socio-political contexts. Refinements and application of measurement are discussed against the backdrop of progressive experience. Criticisms from various quarters are examined and answered. There are enlightening and insightful descriptions of attempts to construct new indices of the sensitive aspects of development such as poverty, gender inequality, and political freedom. There is also discussion on how HDI measures can be doctored at regional or state levels for creating false images or for political gains. With all its limitations, however, HDI continues to be an important measure of development for a social or political entity. The third section focuses on policy implications of the HD approach and HDRs at the global level and for the various segments of the global society. Chapters constituting this section are extracted from the major policy perspectives guiding the various HDRs. While the overall picture of HD reveals improvement across states and regions, the trend is clearly iniquitous with the rich getting the lion’s share of gains in health, education, and access to basic resources for good living. Persisting gender inequalities everywhere raise issues of how women and their work are valued in society. The need for dealing with this problem in the political rather than the economic arena is underscored. A similar view is expressed on problems of poverty and deprivation which should be treated in terms of disparities in opportunities rather than incomes. Elimination of poverty needs to be managed with full participation of the poor. Some well-orchestrated myths about the role of the poor in environmental degradation are questioned. It is stressed that the poor cause relatively less damage to environment but bear a larger amount of blame for it. A culture of caring for the weaker sections of society at various levels is advocated. A corresponding suggestion is the need for an inclusive democracy for a society to bring the values and efforts in the kind of social equality, justice, and quality of human existence that the HD approach stands for. Overall, the book under review should serve as a precious handbook of history, state of art, and future prospects of the HD approach. This approach for now stands at the intersection of an intellectual dream and social reality. A gradual movement of the reality towards the dream is discernible although slidebacks are not uncommon. For a long time, HD is likely to remain an unfinished agenda of the global society and its components. This book possesses vital clues necessary to chase the continuing agenda. It also contains pleasurable sparks of enlightenment on how knowledge and intellect can combine to drive human beings to strive to make us all more human. The content of information and argument occasionally overlaps or is reiterative between chapters. That, however, is part of the culture of a book of readings on a single theme. N R Sheth (Retired) Professor Personnel and Industrial Relations Area Indian Institute of Management, Ahmedabad e-mail: shethsnad1@sancharnet.in 124 124 BOOK REVIEWS INDIA’S MATTERS INDIA’S FISCAL MATTERS Shome, Parthasarathi New Delhi: Oxford University Press, 2002, pp 260, Rs 495 ndia’s public finances are in a very bad shape. The combined fiscal deficit of the central and state gov ernments alone is now 10 per cent of the GDP. This itself is high but if one integrates the finances of the central and state governments with those of the local governments and public enterprises to get a measure of India’s public sector deficit, then the number would be much higher – about 14 per cent of the GDP. India’s public sector deficit is a substantially better measure of the current state of India’s public finances than the combined fiscal deficit of the central and state governments in the country. However, one may argue that deficit is not necessarily a bad thing. It all depends on the resources available for financing the debt service. Consider, for example, some numbers that the Finance Minister has put in the Government of India’s 2003-04 budget. He has budgeted a debt service of Rs 2885.99 billion for 2003-04 while the resources available for financing this add up to only Rs 421.54 billion (revenue receipts available to finance debt service: Rs 109.31 billion; recoveries of loans: Rs 180.23 billion; and privatization receipts: Rs 132.00 billion). This means that he has budgeted to finance as much as 85.4 per cent of the Government of India’s debt service through borrowings and other liabilities. This certainly is not a happy situation; indeed, this reflects the poor quality of economic management at the Government of India level. The rest of the public sector in India is not doing any better either. India currently faces a crisis on the public finance front. Shankar Acharya, in an article entitled “How to Avert Impending Fiscal Crisis” (The Economic Times, February 6, 2003) has revealed the real face of this crisis: “….disappearing rural road networks (no money for maintenance), hugely under-utilized irrigation systems (same reason), school teachers without books and blackboards, health clinics with no medicine, disintegrating water and sanitation systems, electricity boards playing musical chairs with massive arrears while supplying little power, and so on.” How should India respond to this crisis' The book addresses this extremely important question. I The author proposes a fiscal reform strategy for India, comprising both tax and expenditure reform measures, the objective of which is to substantially reduce the deficit and develop a public debt policy that does not imply a high interest burden on India’s public finances. He warns that as the current public finance crisis can cause an economic crisis, India’s performance on the public finance front needs continuous vigilance. While legislating an appropriate tax structure is absolutely necessary, it is not sufficient to ensure efficiency in resource allocation, equity in income distribution, and revenue productivity. What also needs to be ensured is that tax administration practices reflect the objectives and intentions of the tax legislation. The author makes a strong case for tax policy and administrative reforms to ensure minimization of the socalled taxpayer-tax official nexus in India. The discretion available to tax officials under the regime of India’s tax expenditure provisions (that deliver fiscal benefits through the tax system) and the tax administration system which allows the clustering of several tax administration functions under a single officer have created an environment which has allowed this taxpayer-tax official nexus and the associated rent-seeking behaviour to thrive in India. Tax officials pay huge bribes to arrange their transfers to locations with relatively large number of big assessees who can afford to pay bribes running into large amounts. The Economic Times of May 26, 2003, in an editorial entitled “Transfer Pricing,” has revealed that “some corporates also actively encourage and help IRS (Indian Revenue Service) officials to seek plum postings at key ports in Mumbai, Kandla, etc. By simply changing or overlooking the description of goods exported or imported, tens of crores of rupees get saved. This then gets distributed among the bureaucrats, politicians, and middlemen.” Nobody knows the damage that this taxpayer-tax official nexus has done to the revenue productivity of India’s tax system. But one can argue that this would add up to at least four per cent of India’s GDP, roughly Rs one trillion a year now. Additional revenue receipts of this order can help India a lot in managing her public finance VIKALPA • VOLUME 28 • NO 3 • JULY - SEPTEMBER 2003 125 125 crisis. This book discusses in detail the tax policy and administration reform measures that need to be put in place to minimize the taxpayer-tax official nexus in India. One hopes that the embarrassment which the recent shocking cases of corruption in the revenue service have caused the Government of India will serve as a trigger for it to act and take appropriate measures to minimize this nexus. This is an excellent book and I am sure that it will be an asset for policy-makers, fiscal experts, and students in India. Anand P Gupta Director, Economic Management Institute New Delhi e-mail: anand@EconomicManagement.com ECONOMIC DEVELOPMENT IN INDIA: CHALLENGES AND PERSPECTIVES Panchamukhi, V R New Delhi: Bookwell Publications, 2001, p 259, Rs 450 he book under review is a collection of seven thought-provoking and enlightening essays writ ten in recent years describing and evaluating diverse and hitherto untouched aspects of the process of development in the Indian eco- nomy. The first essay is titled “Mobilization of Domestic and External Resources for Development: Lessons from Indian Experiences.” It is rich in information and rigorous in analysis. It selects five important themes such as savings and investment, banking and financial system, government finances, challenges of the external sector, and the problems of economic stability. Each section in the essay describes past trends and the present status of the theme/ issue under discussion, does the diagnosis, and presents policy suggestions. For instance, while discussing the dynamics of the various diverse and complex segments of the Indian financial system, the author underscores the need for vigilant policy-makers and an efficient surveillance system as increasing financial integration may increase the inherent instabilities in the Indian economy. Further, the analysis of the trends and the patterns of savings and investments over the period 1950-51 to 199899 helps draw certain important ‘lessons from the past experience’ and suitable guidelines for effective policymaking. While drawing such lessons, the author has compared India’s saving and investment performance with other developing economies which are known for their spectacular growth performance. However, the author could have compared the trends in productivity as well. It is very important to ensure that Indian economy experiences a declining incremental capital output ratio (ICOR) and our policy-makers refrain from planning with statis- T tical jugglery. The sooner India gives importance to this productivity aspect of saving and investment, the better will be the overall growth and development performance. The author, of course, avers ‘that it is difficult to do justice to all the aspects of the subject in a short chapter like this.’ The second essay on the theme “India Vision 2020” portrays a visionary profile of emerging India by the year 2020 and beyond. At the outset, the essay scans through a few illustrative, alternative perceptions about the world, its nature, and the contours of the human society in the year 2020. It identifies a few core issues and concerns while evolving a visionary profile for India and discusses them ‘in a telegraphic manner.’ The author hopes that the essay will provoke all concerned to work out a new package of development policies and strategies for India to realize the cherished goals and aspirations of the common man of the country. The third essay “World Trade Organization and India: Challenges and Perspectives” brings out the challenges faced by India in the new trading environment under the WTO and the policies it should adopt in the days to come. The author is not very convinced about the benefits for developing countries in general and India in particular from the new trading system. According to him, the new trading system ‘seems to favour the relatively more powerful actors and leaves the weaker segments of the world economy to fend for themselves in the emerging competitive, globalized, market-based world economic environment.’ Such skepticism regarding the new trading system is reflected at other places in the book when he writes that, ‘A reflective analysis of the provisions of WTO seems to suggest that these have been deBOOK REVIEWS 126 126 signed to suit the interests of the MNCs from the economic power groups.’ The author argues that India should operate from the position of strength with a professional attitude and proper preparation in the new trading system under the WTO. To deal with the challenges and to exploit the opportunities arising out of the new trading system, India needs to have intensive preparation for effective negotiations in the ensuing review meetings on various issues like agriculture, services, textiles, etc. Our negotiators should have clarity in perceptions regarding our goals and development strategies, mapping of strategic options, identification of bargaining points and negotiation strategies, and effective coordination with like-minded countries and negotiators. The fourth essay “Five Recent Paradoxes and Anomalies of Economics” describes a few situations of contradictions that are found in some of the accepted economic models and theories. This intellectual exercise provides avenues for inquisitive analysis and intensive quantitative research. In the fifth essay, “Millennium and Economic Challenges,” the author presents a brief and sketchy description of the status of India in the socio-cultural and economic fields during the last two millennia of the Christian era. This essay really reflects the author ’s erudition on indology and Indian classical thoughts and principles of economics and management. The author rightly observes that the thoughts and paradigms that have been perceived and practised in the more powerful economic societies have mentally and mechanically enslaved us. Western economic thoughts have given more emphasis on the material aspects of life. It emphasizes maximization of consumption, capital formation, and profit without recognizing the role played by the ‘values’ in determining the welfare of the economic agents. Indian classical theories of development and management, in contrast, conceive welfare of mankind both in terms of material prosperity and spiritual discipline. The four goals of life, namely, Dharma, Artha, Kama, and Moksha provide an integrated framework for efficient utilization of resources for fulfilling the basic needs for everyone in the society and for realizing maximum capital formation. The classical thoughts have given emphasis on managing self in a value-based framework while the modern management science speaks more about managing materials and the men rather than oneself. According to the author, ‘restoring values in society’ VIKALPA • VOLUME 28 • NO 3 • JULY - SEPTEMBER 2003 is one important dimension of development process that should no longer be neglected. The author argues that our shaking and shrinking faith in the classical theories and principles of economics and management is one of the causes of decadence in the socio-economic and political status of India and also in the world economy. He, therefore, urges us to use our own classical principles of development and management as a basis for designing our developmental strategies for maximizing the welfare of maximum number of people. The author recognizes that it is not feasible to improve the welfare of all in one go or by single policy action. At many places, while suggesting to be cautious vis-a-vis the process of liberalization and globalization, the author rightly emphasizes the need for social safety mechanism to safeguard the interest of the poor and to nullify the adverse effects of the reform programme and policy on them. The sixth essay on the topic “Econometric Research and Public Policy” establishes the fact that the ultimate goal of all scientific enquiry is ‘facilitating policy-making at the government level and decision-making at the corporate level,’ be it via knowledge enhancement or explanation of a phenomenon or demystification of the unknown. Giving a brief historical perspective on the topic, the author raises some pertinent questions in regard to the contemporary econometric research in India. According to him, the potential of econometric research as an aid to policy-making has not been fully utilized in India. There are still many inadequacies in the scope and the content of econometric research as a tool for policy-making which call for attention of the professionals and the policy-makers. Adequately analysing the various issues involved, the author presents some important practical suggestions for improving the relevance and usefulness of econometric research for policy-making. The seventh essay focusing on the theme “Resource Imbalance, Lifestyle, and Economic Crisis” gives a unique and new perspective as it recognizes the role of ‘resource imbalance’ and ‘lifestyle’ as the basic causal factors for crisis situations. The author presents his thesis in relation to the East Asian crisis of the 1997 and argues that the economic crisis was the result of ‘resource imbalances’ caused by wrong ‘lifestyles’ adopted by each economic entity in the East Asian economies. It is interesting to note the author ’s observation vis-à-vis lifestyle-and valuerelated causes leading to the South East Asian Flu which were quite different from the causes listed in some of the recent articles and papers. 127 127 In the same essay, the author, taking cue from the Indian classical thought, provides an interesting ‘model of resource balance with shifts in lifestyles’ and suggests that ‘lifestyle’ should enter as an explicit variable in monitoring and influencing the resource balance situations. Of course, the ‘model of exchange entitlements’ of Amartya Sen, explaining the poverty scenarios in the world, does recognize lifestyle as a variable in welfare economics. To conclude, this book is a fountain of new thinking. At a time when the relevance of the extant theories and stra- tegies of development is at stake, the book will be a catalyst in the continuing search for a new paradigm of development for India, relevant and suitable to its social, economic, and cultural needs and milieu. It is really rich and thought-provoking. Specifically, the fifth and the seventh essays seem to reflect the author ’s many years of intellectual cultivation and culture. Another interesting aspect in the author ’s presentation is that while running the discussion in a positive economics framework, there is sometimes a sudden but apt and enjoyable shift to a normative mode without discontinuity in thoughts. The book will be very useful for researchers, teachers of economics and management, professional econometricians, and policy-makers. Raman K Agrawalla Associate Professor, Economics Apeejay School of Marketing, New Delhi e-mail: raman_a@rediffmail.com The world is too much with us; late and soon, Getting and spending, we lay waste our powers: Little we see in Nature that is ours; We have given our hearts away, a sordid boon! This Sea that bares her bosom to the moon; The winds that will be howling at all hours, And are up-gathered now like sleeping flowers; .or this, for everything, we are out of tune; It moves us not; Great God! I’d rather be A Pagan suckled in a creed outworn, So might I, standing on this pleasant lea, Have glimpses that would make me less forlorn; Have sight of Proteus rising from the sea, Or hear old Triton, blow his wreathed horn. William Wordsworth 128 128 BOOK REVIEWS