2009 Volume 1

AUDIRE
IIM ABC Consulting Review

Technology Wars - 3G vs. WiMAX

Audire is a joint initiative of the student consulting clubs at IIM Ahmedabad, Bangalore & Calcutta.

The IIMA Consult Club is a student-run organization with a mission to:

Consult IIM Ahmedabad

I n t h e bu s i n e s s o f B u s i n e s s
• Acquaint students about contemporary issues and foster discussions
on them
• Update students with the latest thoughts and ideas in the industry
• Provide information about careers in consulting via Industry
Workshops
The Club also takes up Recruitment focused initiatives for the students. It
can be reached at consultclub@iimahd.ernet.in

ICON, the IIMB Consult Club was set up as a student's organization in

1999 and works with a threefold objective:
• Provide high quality consulting services to the industry

Image : © Julian / Permanent Traveler, Creative Commons Atribution. Flickr

• Give students an insight into the challenging world of consulting
• Assist consulting companies in enhancing their visibility and brand
image on campus
The club can be reached at icon@iimb.ernet.in

The IIMC Consulting Club aims to provide opportunities for the students to
participate in live consulting projects. The club arranges various
networking events to enable students to interact with the industry.
Lastly, it organizes consulting games, quizzes and case competitions to
enhance the skills of the students indirectly preparing them for the
consulting industry. The club can be reached at Expert View:
consults@email.iimcal.ac.in "F-E-R Whom the Bells Toll" by
Chris and Ashish, Bain & Co.

Other Articles: Solar Energy, Chemical Industry, Pharma Industry

Sponsor
 Editorial Note
Dear Readers,
We are very excited to launch Audire - the IIM ABC Consulting Review, joint effort of the consulting
clubs at the top three management institutes in India - Indian Institute of Management at Ahmedabad,
Bangalore and Calcutta. However, we would not like to rationalize the introduction of yet another
consulting magazine with long explanations of how it is different from all others out there. That is
something that would become clearer over time and something we aim to achieve with the quality and
relevance of our content, and the depth and incisiveness of the articles. What makes us confident of
being able to do so, is the talent pool from which we draw our resources. This magazine has an
enviously bright and large talent pool comprising of students and faculty at these premier institutes.
Further, with expert inputs from the industry, such as the ones coming from Bain & Co. and UAE
Exchange in this inaugural issue, we know we have a platform that brings together the best minds from
both academia and industry to share insights regarding the most challenging business problems of the
day.

However, what we do want to communicate is the philosophy behind this magazine at this point of
time, which is also reflected in the choice of the name. Audire is a Latin word which means “to listen”.
We believe that a good amount of mess that currently the entire globe finds itself in can be attributed
to our inability to adequately recognize and respond to signals of impending trouble and to changes in
the dynamics of the environment where we operate. That is because, we, delirious in our success and
deafened by the noise of self directed applause, failed to listen closely. And it is time we did so, it is
time we lent our ears to listen to realities on the ground and act accordingly. Our magazine intends to
showcase work that closely analyzes these realities and changes in various sectors, industries,
functions and geographies. The current edition includes articles across sectors such as
pharmaceutical, telecommunications, chemical, solar energy and rural infrastructure and this breadth
shows our commitment towards the claims made above.

We are thankful to the faculty members and students at IIM Ahmedabad, IIM Bangalore and IIM Calcutta
and our sponsors, UAE Exchange, who have helped us in making this magazine a reality. A special thanks
to Padmashree Dr. B.R. Shetty, Managing Director, UAE Exchange, Mr. Chris Zook, Partner at Bain &
Company, and Mr. Ashish Singh, Managing Director at India office of Bain & Company for contributing
their views for our magazine. Please feel free to send in your valuable comments at
Audire.IIMABC@gmail.com

Thanks,
Team Audire

Editorial Team

IIMB: IIMA: IIMC:

Gaurav Dharmadhikari Nishith Gupta Siddhesh Joglekar
Rahul Agarwal Hrishikesh Sabnis Pranjali Chanchani
Partha Pratim Bose Deepak B Apoorva Kumar
Nishant Chandrima Das
Arunava Saha Dalal Tushar Bohra
Shamiroh Tikoo Vaishnaovi

AUDIRE - IIM ABC CONSULTING REVIEW i

 AUDIRE - IIM ABC CONSULTING REVIEW

Guest Editorial

Can we be ants?
An interesting morsel of information on the animal world, once encountered, seems to have come back. Body
temperature of ants changes in response to the atmospheric temperature. In winter, it falls so greatly that
their movements grow sluggish, and most species of ants eat a large amount of food in autumn to put on fat,
thereby allowing them to go without food through the winter. That leads to an interesting question which we
can ask ourselves these days …can we be ants?

Our world today faces a similar situation as the ants. Winter has dawned on most global economies…in varying
degrees of magnitude. And so like the ants, we have grown sluggish, worried about the winter getting even
severe. We talk about budget controls, frozen recruitments, and even of layoffs. But can we afford to be
ants, living without food till spring comes? The answer is 'no', because maybe, we haven't eaten enough during
the autumn as we thought.

Are these damage controls good enough to ensure that we wades through the winter to be strong enough for
the next season? The answer is 'no' again. Smooth sea never makes good sailors! This old saying holds more
truth these days when the markets are down and the survivability of businesses and individuals are in
question. This is the time for firms to express solidarity with their employees and vice-versa.

Year 2009 is not going to be an encouraging one for the financial sector, as the affect of the global financial
crisis, which shook USA in early 2008 and led to the closure of many giant firms, is sure to last for some time.
Than being ants, let's start looking at the brighter side of things, for this dark cloud has its silver lining too.
Consumers, employees and the organisations themselves can benefit well during an economic recession.

The market is cleansed, separating the wheat from the chaff. Organisations with good fundamentals alone
would survive the holocaust. Speculation in the market goes southwards, and we tend to look at commercial
promises and propositions more realistically. Consumers and the market as a whole learn the valuable lesson
that every unit of money saved is every unit earned, which would help them live within their means. This
improves the liquidity of individuals and the market as a whole. Financial institutions look for more funds to
roll and we get more from the money we save.

ii
Well, that's about consumers. Where are professionals like you in this economic mayhem? Even when there
are reasons to worry, you can't afford to panic. Good organisations would continue to hire, and those which
hire would mostly be good organisations. You could tread with confidence to those doors on which that
recruitment board is hanged…for chances of landing a good career cannot go wrong.

And for organisations, a recession makes available more professionals in the market. NMC Group and UAE
Exchange, which we represent, are proud to be among those who recruit professionals more during these
times. Because, we believe that the human intellect and other high performing resources can help
organisations face adversities better. The key to success lies in imposing discipline in ones functioning. Let
organisations of the world value their resources more, and let resources bring more value to those
organisations.

A few tips would help, however. Professionals, who are looking for job, can enroll themselves in a course/
training as they hunt jobs, as most trainees end-up getting confirmed employment as they build up a synergic
relationship with the company they work for. The economic slowdown gives breather for professionals to take
up short-term studies and courses as well. And when you are offered a job, do not have rigid choices regarding
city, salary, designation, location, shift etc. If you get a job, grab it and gain experience. The keyword which
employers are looking for during a job interview is 'flexibility'. For job interviews, agree for any place, date
and time because if you don't, somebody else will take that slot.

It is important to learn from the experiences around, the socio-economic developments, and to equip
yourself to ensure that you contribute to a healthy organizational and economic environment in the best
interest of all. Professionals like you have an important role to play. You should uphold truth and sanctity at
all times and always be empathetic to the consumers and the society, which would help us not to face a
downturn again. Sustainability should be the prime mantra of business enterprises. Sustainability can only be
achieved through social commitment and service.

The financial world needs to overcome these challenging times with immense courage and commitment. Let
us face the situation courageously, both as individuals and as corporates. A person, an organization, or an
institution can successfully survive if they have these 5 Cs

· Character
· Commitment
· Conviction
· Courtesy
· Courage

Let's not worry as what goes down will always go up. When you hit the bottom, there is nowhere else but to
move up. Markets tend to rebound. Don't lose heart. Lets not be those fattened, pampered ants that have
gone sluggish during the winter. Let's work even harder for that spring to dawn earlier.

By Padmasri Dr. B. R. Shetty

(The author is the Managing Director and CEO of NMC Group and UAE Exchange, both based in UAE, with
operations spanning across the globe)

AUDIRE - IIM ABC CONSULTING REVIEW iii

 Table of Contents
Expert View

1 F-E-R WHOM THE BELLS TOLL

The companies need to be acutely aware of which phase of business cycle they
are in to withstand the turbulence in world economy.

Notes from Academia

5 STRATEGIC RESPONSES TO INSTITUTIONAL CHANGES IN THE

INDIAN PHARMACEUTICAL INDUSTRY
The changes in the patent regime have necessitated adoption of various
business strategies by the INDIAN PHARMACEUTICAL COMPANIES.

7 THE ROLE OF EMERGING ECONOMIES IN RESOLVING THE

FINANCIAL AND ECONOMIC CRISIS
Are the emerging economies capable of showing the world the way out of the
current mess?

Campus Thoughts

9 TECHNOLOGY WARS: COMPETITION DYNAMICS OF THE

WIRELESS SPECTRUM IN INDIA
How does the future of the wireless horizon look …

17 BRANDING AND EMERGING MARKETS

Global brands are likely to emerge from developing economies over time,
similar to the experience of countries like Japan and Korea.

21 FRAMEWORK FOR ANALYZING ENTREPRENEURIAL ACTIVITIES

Brings out the relation between entrepreneurship and the media industry

GLOBAL ECONOMIC SLOWDOWN: THREAT OR OPPORTUNITY

25
FOR INDIA?
The Global financial turmoil and its long and short term implications on the
Indian industry.

iv
31 INTERESTING TIMES: THE US AUTOMOTIVE SECTOR
Has the US automobile industry been digging its own grave? A look into
the causes for current crisis and possible way forward.

37 WHY THE SOLAR INDUSTRY NEEDS OIL PRICES ABOVE

$70/BARREL
Explains the link between solar industry and oil prices…

IMPLICATIONS OF RURAL ROAD DEVELOPMENT ON ECONOMIC

39
GROWTH OF INDIA
Focuses on the importance of rural infrastructure, present scenario and
compares India with China in this regard

45 CHEMICAL INDUSTRY:
How BASF sustains in the highly challenging chemical industry

AUDIRE - IIM ABC CONSULTING REVIEW v

Source - Image: © Sudhaamsu Hebbar, Creative Commons Attribution, Flickr

F-E-R
WHOM THE BELLS TOLL
Introduction
Something has fundamentally changed in the
world of business. Although just a handful of
people seem to have internalised this shift, the
effect is astounding and profound. Ten years from
now, one in three companies will no longer be
independent because of bankruptcy or a takeover,
while another one in three will be completely
different at its core - maybe even having a
different core. Just one in three will resemble
what it looks like today.
What this means for countries with dynamic
markets, such as India's, is that around two-third
of companies will discover in the coming years
they need to make fundamental changes in their
business models. Surveys reveal the No. 1
innovation priority for CEOs is to find ways to
innovate around the fundamentals of their
strategy and its underlying economic engine.
That's what De Beers did in the end-1990s and
early 2000s in response to a slump in the diamond
market that resulted in its profit margins hovering
near zero. The world's largest diamond producer
successfully shifted its decades-old strategic
focus of reigning over global diamond supply to
developing the power of the De Beers brand by
zeroing in on its hidden assets: the company's
unique relationship with customers.
As the world's economy changes rapidly - all the
more tangible in India - company evolution will be
faster, just as evolution of organisms in a changing
environment is hundreds of times faster than at
the bottom of the sea. Firms that don't redefine
face a higher risk of going out of business.
While the pace is accelerating, the cyclical
process of regeneration is predictable and
Expert view
universal. Many human and natural phenomena
follow foreseeable cycles, such as our biorhythms,
or the phases of the moon, which allow us to chart
and understand them better.
A similar process of regeneration exists in
business, which we call the Focus-Expand-
Redefine (F-E-R) cycle.
It sounds simple, but companies - more now than
ever - need to be acutely aware of which phase of
the F-E-R cycle they are in to safely negotiate the
increasingly turbulent crosscurrents of the global
economy.
In the Focus phase, a company concentrates on
building its core business to its full potential. In
the Expand phase, it takes advantage of its
capabilities and market position to move into -
and conquer - adjacent markets. But inevitably,
many companies experience dwindling growth
and profitability, or a direct threat to the core,
from a new competitive model with inherently
superior economics. This is the time to Redefine
the core.
Core And Beyond
Some businesses, however, have successfully
remained in the Focus stage and extracted
tremendous value by sticking to their core. India's
Hero group, the country's top seller of
motorcycles, is one such case.
In the early 1990s, Hero was quick to seize on the
customer shift from scooters to the fast-growing
motorcycle segment through its company, Hero
Honda. By turning the spotlight onto motorcycles -
which witnessed 26 per cent compounded growth
from 1993 to 2000 - it assumed leadership in the
two-wheeler industry from Bajaj and surged
ahead of rival TVS.
AUDIRE - IIM ABC CONSULTING REVIEW 1
 AUDIRE - IIM ABC CONSULTING REVIEW
Its efforts to strengthen its two-wheeler core paid
off in other ways: the share of Hero Honda in
overall group sales rose to around 80 per cent in
2006 from slightly over 40 per cent a decade
earlier.
On the other hand, the Bajaj Group did not zero in
on its two-wheeler business - Bajaj Auto - with
such gusto and lost its way: the share of two-
wheelers in overall group sales in 2006 was around
60 per cent, basically unchanged from 1996.
Unlike Hero, a large percentage of Bajaj's sales
continued to come from its other businesses in
steel, electrical equipment and sugar.
The fallout? By March 2003, Bajaj was significantly
behind Hero in the two-wheeler market; a
dramatic shift in fortune from March 2000 when it
had close to double Hero Honda's share.
For other companies, each stage of the F-E-R
cycle helps fire and drive the next. Success at the
Focus phase provides the fuel to move to
adjacency expansion: in other words, into a
business relatively close to the core. Success at
adjacency moves often provides the growth - and
breathing room - to redefine your business model
over time, or add a new core.
As India's economy grows strongly, many of its
companies are in the Expand phase. Take Bharat
Forge, for instance. In recent years, the auto parts
maker and the world's second-largest forgings
company has moved into geographies such as the
US and Germany through strategic acquisitions
with the aim of boosting sales.
In 2003, it bought Carl Dan Peddinghaus, one of
Germany's largest forging companies, gaining
access to car makers BMW, Audi and Volkswagen.
Two years later, it acquired Michigan-based
Federal Forge, which gave it a foothold in General
Motors and tyre maker Goodyear.
Bharat Forge's adjacency strategy has hit pay dirt:
its worldwide revenues soared from $137 million
in 2001 to $741 million by March 2007. It is
2
reported to be eyeing acquisitions and greenfield
projects in China and, once again, in the US.
Other Indian companies, too, have made a habit
of moving into related adjacencies. ICICI Bank,
India's biggest private bank, is a high-profile
example.
From its core banking sector in the early 1990s, it
has leapt into multiple adjacencies, including
non-life insurance and travel portals. The
company has also expanded into new countries,
including Russia, the US, Britain and South Africa,
and plans to set up more branches overseas.
However, it's not always smooth sailing.
Companies face risks as they look at the Expand
phase of the cycle, such as premature
abandonment of the core into distant adjacencies
- stemming from failure to see the full potential of
a core business - as well as hasty leaps into
adjacencies that were further and more difficult
to develop than recognised at first.
Another timing error that companies face is the
failure to start redefining quickly enough when
profitability declines or a new competitive model
becomes a threat.
A third and final timing error in the cycle is plain
old inattention, or taking the core for granted.
This could be fraught with risk, as a once clear,
low-cost leader can be mimicked, allowing
competitors to catch up.
Redefinition: Pay Attention
But cycles often play out over decades, lulling
managements into complacency and making it
imperative for CEOs to perceive the need to
redefine early. One company that paid attention
soon enough was General Dynamics, which
perceived a major profit pool collapse ahead of it
competitors.
In 1984, General Dynamics reigned as America's
largest defence company, with comfortable
revenues of $7.8 billion. But with US defence
 Expert view

expenditures dwindling in the late 1980s and early Author(s)

1990s, it underwent one of the most thorough
transformations in business history. Chris Zook is a Bain & Company partner who leads
the firm's Global Strategy Practice and is based in
By 1992, it had reduced itself to three core
Amsterdam.
businesses and $3.5 billion in revenues, a 70 per
cent downsizing in three years. Its transformation Ashish Singh is the managing director of Bain &
included selling businesses ranging from Company, India and is based in New Delhi.
aerospace to land systems. It then followed this
up with selective acquisitions to bolster its Copyright (C) 2009 Bain & Company India Pvt.
profitable submarine core and build a new, Ltd., All rights reserved.
related core in electronics and information
systems for defence programs.

Its redefinition has held the fourth largest US

defence contractor in good stead over the years.
The company's net profit in 2007 rose 22 per cent
to $2.1 billion year-on-year. Total sales in 2007
increased 13 per cent to $27.2 billion over 2006, a
nearly eight-fold rise from 1992.

The key to General Dynamics' resurgence was a

major study it commissioned in the early 1990s of
its demand and asset values for every sector in
which it participated. This was an unusual step as
Bain studies show that managers typically spend
less than 3 per cent of their time developing a
long-term view of their industry. It helped the
defence contractor see the writing on the wall
before other defence companies, and perfectly
time its redefinition.

In your own planning, ask yourself if you are

probing into each phase of the F-E-R cycle in a
balanced way. Are you sure where you are? What
are the warning signals to look for? Answering
these questions could help you change your
strategy or redefine - before it is too late.

AUDIRE - IIM ABC CONSULTING REVIEW 3

4
Source - Image: © Thomas / Tomsaint11, Creative Commons Attribution, Flickr

STRATEGIC RESPONSES TO
INSTITUTIONAL CHANGES IN THE INDIAN PHARMACEUTICAL INDUSTRY
Abstract
The pharmaceutical industry in India has seen a
paradigm shift due to changes in the patent
regime as well as changes in Indian business
environment post liberalization. This has
necessitated adoption of various strategies to
stay competitive. Some of these strategies are
developing R&D capabilities, exploiting generics
market globally, securing product lines from
international players and becoming a
manufacturing partner for a global player
Introduction
The sweep of reforms and liberalization initiated
in the early nineties dramatically changed the
face of many industries in India. Indian
pharmaceutical industry, though one of the latter
ones to be touched by the hand of reforms, is one
such industry undergoing a paradigm shift.
Indian pharmaceutical industry was governed by
the Indian Patent Act (IPA), 1970, which did not
allow product patent on medicines, agricultural
products, and atomic energy. In 1995, the
Government of India signed the General
Agreement on Tariffs and Trade, GATT (WTO was
the successor to GATT). As a signatory of GATT,
India was expected to introduce product patents
and provide legal protection to Trade-Related
Intellectual Property Rights (TRIPS). India was
now under compulsion to introduce a product
patent regime by 2005 after a permissible
transition period of 10 years. India shifted from
process-based patenting to product patents,
2005 onwards.
Since 1995, when India signed the WTO, the
Indian pharmaceutical companies have been
adopting various strategies looking ahead at the
product patent regime that would come into
place in 2005. Some of the broad strategic
Notes from Academia
response choices available for Indian pharma
companies were:
Expansion of therapeutic coverage and increase in
the rate of introduction of new products
F Creation of more brands and increase
in distribution reach On reach
F Development/acquisition of R&D capabilities
for producing new molecules
F International alliances and tie-ups to
secure product pipeline post 2005
F Mergers and acquisitions of products as
well as companies
F Strengthening existing generic product
capabilities to exploit global opportunities in
generics.
F Re-positioning of the company as off-
shoring partner for global players in
L Manufacturing and other support
services
L R&D services
F A combination of more than one of the above
Our study aimed to examine the strategic
responses of some of the large Indian
Pharmaceutical companies over the last 10 years
to the change in the patent regime. Case studies
of 5 of the top 20 Indian Pharmaceutical
companies are prepared and analysed. Through
the analysis of these case studies, an attempt is
made to identify the key resources and
capabilities (can be viewed as the critical
strategic factors for success by practitioners) that
will have an impact on firms' strategies and
performance. Based on this, implications for the
industry as a whole are drawn with regard to how
firms adapt to changes in patent regime.
The critical resources and capabilities identified
are:
AUDIRE - IIM ABC CONSULTING REVIEW 5
 AUDIRE - IIM ABC CONSULTING REVIEW
- Research & Development
- Diversified Product Portfolio
- Global Presence
- Marketing and Distribution
- Manufacturing Competence
- Financial Strength
A few adaptation strategies that can be
implemented with the existing resources and
capabilities, in view of impending change in
patent regime are:
F Indian companies can pursue a strategy to
become a research-based international
pharmaceutical company. This requires
development or acquisition of all round
resources and capabilities R&D capability,
diversified product portfolio, global
presence, marketing and distribution
capability, manufacturing competence and
financial strength.
F Strategy to secure a product pipeline from
international players keen to enter India by
becoming their chosen partner. This requires
three critical resources and capabilities - a
diversified product portfolio, strong
marketing and distribution capabilities in the
domestic market and good financial strength.
F Strategy to exploit global opportunity in
generics market. It requires development /
acquisition of the following resources and
capabilities R&D capability, global presence,
marketing and distribution capabilities,
manufacturing competence and financial
strength.
F Another strategy available to Indian
companies is that of becoming a preferred
outsourcing partner in manufacturing or
research for international companies. This
requires superior resources and capabilities in
terms of manufacturing competence,
financial strength, R&D capability and a global
base of customers.
Apart from the above said strategies, several
others are also possible; however, they are likely
to need one or more of the key resources and
6
capabilities that are identified above. The above
sample of 5 case studies is too small to draw any
conclusions for the entire Indian pharmaceutical
industry; but the sample gives rise to some clear
pointers, which can have important implications
for the Indian pharmaceutical industry in the
context of the change in patent regime.
Even though the sample companies are among the
top 20 Indian pharmaceutical companies, only a
few are reasonably positioned to emerge as
research-based, globally competitive
pharmaceutical companies. Professional
management of R&D, with a strong commitment
and support from the promoter/shareholder,
seems to play a crucial role in the success of the
research program. Financial strength seems to
emerge as a crucial strategic success factor that
differentiates companies who are able to make
the transition from those who are unable to do so.
There are an estimated 300 to 350 companies in
the organized sector of the Indian pharmaceutical
industry (and close to 20,000 players in total).
Financially strong companies in the Top 20 find it
difficult to develop the resources to make the
transition to research-based companies if they are
very large companies. The difficulties that lower
the probability of an 'average' organized player of
making the necessary transition can be easily
imagined. The consequence of failure of several
organized players can be very severe and the
repercussions can be huge, in economic as well as
social terms. Some form of Government
intervention and support in terms of
strengthening critical factors such as financial
strength and R&D capabilities has become
indispensable to help an average Indian
pharmaceutical company make the transition
smoothly and successfully.
Author(s)
Dr. Raveendra Chittoor is a professor of Strategic
Management Group, IIM Calcutta.

THE ROLE OF EMERGING ECONOMIES IN
RESOLVING THE FINANCIAL AND ECONOMIC CRISIS
Abstract
The present crisis which we are observing is
rooted in multiple causes and its scale prevents a
comprehensive understanding of the situation.
The so called rich nations haven't been able to
provide a legitimate solution to the present
financial crisis. The authors argue that the onus
now invariably lies with the emerging economies
to help the world come out of this mess; however
given the diversity of the emerging markets it is
not going to be an easy feat to achieve.
Introduction
Those who remember the 1997 Asian financial
crisis, would immediately point with great
specificity the causes for the Asian financial crisis
like crony capitalism, over-assertion of capital
controls and a half dozen other causes and at least
as many remedies. The 2008 crisis too seems to
have a half dozen core causes which exploded at
around the same time and which causes were
interlinked with each other. The interlinking,
previously not even seen as correlated were in
fact not merely highly correlated but also causally
aggravating each other. Compound all the above
with the problem of over-leveraging of companies
and financial institutions, and you arrive into the
eye of the year 2008 storm.
While the problems were not apparent to most
people, particularly the scale of the crisis, we now
understand many if not most of the problems
which caused the financial and economic crisis.
However, the scale of the problem evades an easy
solution. It is clear that governments are too small
to singly grasp at the problems; however as the
biggest player in the world, they still clearly have
the biggest role to play. It is also becoming very
clear that the seven rich nations (or G7) are
Notes from Academia
unable to present solutions, though many of them
have provided ample problems. In the absence of
a more legitimate and wider group of nations
which better represent the world economy,
looking for solutions would not be possible. In this
context, besides the G-7, the other rich world
controlled bodies including the Bretton Woods
institutions are looking increasingly anachronistic
and non-representative of the new world order.
Few would deny that a large part of the solution
lies with countries called emerging markets.
Amongst these is China and India with a large and
growing middle class and thus which have a large
potential to ease the precipitous fall in demand of
goods and services from the richer nations given
sufficient fiscal stimuli and monetary easingfrom
the governments. Similarly, resource rich
countries like, Saudi Arabia, Russia and South
Africa could play a key part in ensuring that
commodity shocks are nottransmitted across the
globe because of short sighted restrictions on
exports and tariff increases. While the advanced
countries certainly need to commit to eliminate
subsidies to their farm produce (ironically owned
by rich farmers), as it directly hurts poor farmers
of emerging countries, the emerging countries,
especially Brazil, China and India need to
reciprocate the reversal of such perversions with
their own nod to the Doha round of trade
negotiations. In any case, the Doha negotiators
need to find a way to move forward on the 17 (of
the 20) items where there was unanimity and
leave the 3 for subsequent negotiations. In
constitutional law, the principle of severability is
commonly employed to remove those laws which
offend the constitution from those parts which do
not. A similar approach could be applied to the
Doha round of trade negotiations. Finally, and
importantly, nations with large trade and budget
AUDIRE - IIM ABC CONSULTING REVIEW 7
 AUDIRE - IIM ABC CONSULTING REVIEW

surpluses should loosen their purse strings and

assist the world economy parched of liquidity with
their money.

There is no one class of emerging economies

which would provide a single vision of solutions to
what looks like a wide and deep crisis. If a number
of emerging economies' interests are aligned
properly they could provide not only a useful but a
necessary addition to the acts of the developed
nations in reducing the severity and length of the
crisis. Clearly with the heterogeneous mix of
nations with distinct economic, political and
social backgrounds, creating a clear alignment of
such nations is hardly an easy task. However, this
is the time for many of the emerging nations to
show leadership in a new world order which
demands and respects their leadership. In an
environment of less than credible international
organisations, the World Economic Forum, could
play a key role in persuading both the advanced
countries and the emerging economies to do the
right thing for a better future of all nations.

Author(s)
Sandeep Parekh is a World Economic Forum's
honoree as Young Global Leader 2008, and this
piece was solicited by and submitted to the WEF
to help create a roadmap for shaping the post-
crisis world at its annual meet in 2009 at Davos.

8

TECHNOLOGY WARS: COMPETITION DYNAMICS
OF THE WIRELESS SPECTRUM IN INDIA
Abstract
The telecom industry is always in a state of flux
with rapidly advancing technologies competing
with each other for a share of the market. The
most recent development is the war between 3G
and WiMax. Major players in the global arena are
aligning themselves with one or the other of
these two emerging standards. On any given day,
the business section of newspapers carry several
articles describing how companies are lining up in
the 3G-WiMax battle. This paper examines in
detail the technology options before existing and
new service operators and how investments in
these would provide them with a competitive in
an 'anywhere, anytime' access industry.
Introduction
Technology change poses major challenges to
existing companies. It also provides opportunities
for new entrants into the industry. These
dynamics of change and adaptation are most
visible in the telecom industry. The opening up of
the market and the changes in the regulatory
framework in India has created a very competitive
telecom Industry in India. There is always pressure
on the service providers to increase Average
Revenue per user (ARPU). The transformational
nature of the mobile technology in the world
makes analysis of this space very interesting. The
mobile set is undergoing a sea change. From a
device meant for voice communication it is being
transformed into a device that carries out
multiple functions. It is precisely because of these
reasons that the emerging new technologies have
shaped themselves to serve both voice and data
capabilities. 3G and WiMax both are emerging as
potential competing technologies. As the battle
for better data and voice services builds up, the
decision for the telecom operators on what
Campus Thoughts
technologies to choose becomes even tougher
since strong consortiums back both the 3G and
WiMax Technologies.
The two contenders For Next Generation
Wireless communication
Currently, 2G Networks are the base technology
for voice communication. The two main standards
included under 2G are the GSM and the CDMA. The
emerging 3G network boasts of super voice quality
as compared to 2G and is a unified standard model
based on a W-CDMA technology. While 2G
networks transferred information at 16 kilo bits
per second (kbps), the 3G technology can transfer
data at rates of over 2 Mbps.
The WiMax standard was conceived as a
technology mainly meant for data transfer and
high speed internet connections. With the advent
of the Voice over Internet Protocol (VoIP), WiMax
has begun to serve many customers with both
voice and data services. WiMax connections have
the capabilities to transfer data at rates as high as
35 Mbps. This battle that was beginning to change
the global mobile landscape was not very relevant
in the Indian context a few months back because
of the regulatory requirements that did not allow
voice transfer over the internet. A recent ruling by
TRAI has removed all restrictions over internet
telephony. This change makes WiMax and 3G
competitors in the Indian mobile landscape.
Evolution of technology
The mobile space has seen a rapid development of
4 generations of technologies, the First
Generation or 1G, the 2G, the Evolved 2G or 2.5G
and the 3G. Each generation is associated with
different standards. The development of the
WiMax technology started in parallel with the
2G/3G standards but concentrated mainly on
AUDIRE - IIM ABC CONSULTING REVIEW 9
 AUDIRE - IIM ABC CONSULTING REVIEW

data. However the development of the VoIP has WiMax

converted this data standard into a technology
that can also provide voice services. WiMax is always spoken as the technology that can
enable the last mile wireless access to the
Third generation or the 3G customer. Many businesses are actually looking at
WiMax for the sole purpose of high speed data
A massive evolution of the technology has come
access to their offices.
into existence in the form of the 3G technologies
which are under the IMT2000 standard High WiMax 3G
speeds of up to 4 Mbps on the uplink can be Development Broadband Voice
achieved along with the greater network Motivation data service Services
capacities due to better spectral efficiencies. Multiplexing OFDM TDMA/
technology CDMA
As with every technology, the superior spectral
Date Rate 16 Mbps 4 Mbps
efficiencies and the data and voice transfer
speeds come at a price. 3G can provide the user an Degree of Initial Stage Roll out
Development stage
experience that he has never received in terms of
Company Intel, Qualcomm
data quality and voice signal, 3G can have the Motorola
backing
potential to become big. 3G will in turn merge the
customer base of both the standards by laying out EXHIBIT 1 : COMPARING 3G AND WIMAX
proper migration paths for both the standards. WiMax has been proven to have superior spectral
efficiencies and higher data transmission rates as
compared to the 3G networks.

2
Spectral Efficiency
1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
bps/Hz

HSDPA HSPA 1:1 3:1 1:1 3:1

Reva Rev B SIMO SIMO MIMO MIMO

Downlink Uplink
Source: Alvarion Networks, White Paper on 3G and WiMax

EXHIBIT 2 : SPECTRAL EFFICIENCY COMPARISON BETWEEN 3G AND WIMAX

10
 Campus Thoughts

16 Net Troughput per Channel/Sector

14

12

10

0
1xEVDO 3xEVDO 1:1 3:1 1:1 3:1
Rev A Rev A
HSDPA HSPA
SIMO SIMO MIMO SIMO
Source: Alvarion Networks, White Paper on 3G and WiMax

Downlink Uplink
EXHIBIT 3 : NET THROUGHPUT COMPARISON BETWEEN 3G AND WIMAX

A comparison of the two technologies indicates

Input Technology Computation
usage factor to
their substitutability which needs to be
Karnataka Data of coverage
for Area &
obtain
area for BTS
understood in greater detail. For the purpose of
consumer
Population density range the same a model was developed.

Modeling 3G & Wimax

Calculating Computing no. Customer
infrastructure denstity & A model was developed on Excel to simulate the
cost from no. of BSC and
of BSC, BTS & MSC from no.
tower range financials for a company that attempts to setup its
MSC and their determine no.
unit price of BTS of BTS
wireless network in the state of Karnataka, India.
The model will be used to predict the profitability
and also the growth potential of the two
Comparion of Capex and life
costs from ARPU for a technologies. The following illustrates
Average determine particular
Infrastructure costs/year technology methodology for the model.
per user and (Debt+Opex result in the
previous and +Equity) revenues
previous step Inputs
The Inputs section is divided into four main data
Obtain yearly sets.
profits and
then the Net
Present Value State Data: The model assumes that an Operator
of the Returns needs to setup a network so as to cover each
customer in the state of Karnataka. To simulate
the same, the model uses information on the
EXHIBIT 4 : MODELING METHODOLOGY population in the state.

Technology Information: This section takes

inputs on parameters that are specific to each
technology. The initial data collected is that of

AUDIRE - IIM ABC CONSULTING REVIEW 11

 AUDIRE - IIM ABC CONSULTING REVIEW

the Technology usage Factor. It is defined as the

fraction of the population that adopts a particular
technology. The next information that is input is
the Range of the tower. The range determines the
tower area coverage

Each tower consists of sectors, channels, and

subscribers. These are multiplied to obtain the
capacity in Erlang for the tower. One Erlang is the
equivalent of one call (including call attempts and
holding time) in a specific channel for 3600
seconds in an hour. This information when
combined with the usage of the customers will
result in the maximum customer carrying capacity
for a BTS (Base Transmission Station). This results
in a capacity of 192 Erlang for each BTS for a 2G or
3G technology. In the 2G standard, each customer
EXHIBIT 5 : MODEL ASSUMPTIONS AND SCHEMATIC
Karnataka State Data
Land Area Revenue per user (ARPU). The same is
191791 sq kms
incorporated in the model to predict the future
Population 52850562 people cash flows for the operator. Both 3G and WiMax
Range of Telecom towers are meant to transmit data and voice as well. This
2G/3G 40 kms implies that the ARPU for the next generation
WiMax ~50 kms technologies will be a more than the 2G
Model technologies as there will always be some revenue
earned from the data services.

Financial Information: This section in the Input

is allowed a bandwidth of 16 kbps (kilobits per
second) while the same is upgraded to nearly 384
kbps-2Mbps in the 3G standard.
The network setup costs in the model are
estimated based on the independent costs of the
BTS, BSC (Base Service Stations) and the MSC
(Main Service Station). For setting up a 2G
network, the initial Capital Expenditure involved
for setting up a tower is nearly Rs. 25 Lakh while
the same for a BSC is Rs. 50 Lakh. Constructing a
MSC requires Rs. 7 Crore. In Karnataka, a major
operator requires 9 MSC to cater to nearly 45 BSC
which in turn service 60 to 70 BTS each. For
setting up the WiMax networks, the Capital
Expenditure amounts to $75000 per cell site.
Customer Information: The most important
contribution from the customers from the point of
view of a Network operator is the Average
sheet inputs the usual Debt: Equity ratio for
Telecom Operators. Major infrastructure projects
usually have a near 70:30 ratio which signifies the
lower costs to service debt as compared to equity.
The Costs to service Debt and Equity are assumed
at 10% and 14% respectively.
Revenue Model
This section simulates the revenue and earnings
model for an operator in the next generation
domains. The life of the technology is assumed to
be 15 years in the calculations for this model.
Operations and Maintenance costs are estimated
as a percentage of the initial capital expenditure.
The output of the model also runs sensitivity on
the O&M costs and estimates its relation with the
returns obtained by the company. All the above
costs include the total costs that are borne by the

12

company each year which include the costs of
debt repayment, the return on debt and equities
and the O&M costs.
The revenue for the operator is estimated by the
product of the ARPU and the number of
subscribers each year. The number of subscribers
adopting the technology is modeled as an S-Curve.
The model (adaptation of the Bass model)
assumes that there are certain early adopters for
the technology which are followed by the
imitators. The model resulted in some key findings
that are mentioned in the following section.
Key Findings
Running sensitivity analysis on the parameters
resulted in three main conclusions on the
independent sustenance of the technologies.
These have been mentioned below.
Proposition 1
“The Cost of setting up a Brownfield 3G is less than
Greenfield WiMax which in turn is less than
Greenfield 3G”
From the outputs of the model, it was seen that
the total infrastructural cost for setting up a
Greenfield 3G Network throughout Karnataka was
costlier than a Greenfield WiMax Network. The
main reason for this cost efficiency is due to the
savings that result because of the single
consolidated cost of BSC-BTS unlike 3G which
requires separate BSC and BTS.
On the other hand when it comes to a Brownfield
environment where there are existing networks in
place, the 3G networks can obtain synergies close
to 70% of the cost of a Greenfield 3G. This
becomes an attractive proposition for an existing
2G operator who wants to upgrade to the next
generation technologies.
The primary reason of this cost saving of
Brownfield 3G is due to synergies by using the
existing BSC and BTS infrastructure of 2G
networks. For upgrading an existing 2G BTS into a
3G network compatible BTS, a converter box
needs to be installed. Similarly a Radio Network
Campus Thoughts
Converter needs to be set up at the existing 2G
BSC facility to make it compatible with 3G
networks.
Proposition 2
“Data Services offered by WiMax have to be
markedly superior compared to 3G in order to
justify any investments in it considering the same
ARPU from a user”
120%
100%
80%
60%
40%
20%
0%
0 5 10 15 20
S-Curve Method (WiMax)
S-Curve Method (3G)
EXHIBIT 6: COMPARING ADAPTATION RATES AT
SAME ARPU
Analysis using an S curve adaptation rate shows
that because of higher capital expenditure
associated with Greenfield WiMax in comparison
to Brownfield 3G, WiMax would require a much
higher initial adaptation rate compared to 3G to
justify investments in it. Since the current USP
(ultimate selling point) of WiMax compared to 3G
is the Data Services offered by it, they have to be
markedly superior to achieve greater adaptation
rates.
Our Analysis shows if the initial adaptation rate of
WiMax is 3 times compared to 3G in the initial 5
years, then an investor can earn an ROI of 35%
compared to 30% ROI of 3G. Exhibit 4 indicates a
comparison of the Adaptation rates as obtained
from the model for the two technologies assuming
a constant ARPU. The constant ARPU indicates
that the technologies are perfectly substitutable.
AUDIRE - IIM ABC CONSULTING REVIEW 13
 AUDIRE - IIM ABC CONSULTING REVIEW
Proposition 3
“Value Added Services offered by WiMax has to be
markedly superior compared to 3G to earn the
significant higher ARPU assuming same adaptation
rates”
1200
1000
800
600
400
200
0
200 0 5 10 15 20
Earnings (S-Curve-3G)
Earnings (S-Curve-WiMax)
EXHIBIT 7: COMPARING EARNINGS AT SAME
ADAPTATION RATE
For a similar adaptation profile in WiMax and 3G,
WiMax has to have an ARPU of 1.7 times compared
to 3G for justifying an investment in Greenfield
WiMax networks. This assumes a 5% premium on
return on investment in Greenfield WiMax as
compared to Brownfield 3G. As mentioned before
returns on investments in Brownfield 3G is 30%.
Exhibit 5 indicates the profile of the returns that
WiMax will need to generate so as to justify its
higher initial capital expenditure when compared
to the 3G networks which is taking advantage of
the synergy from the existing 2G networks
Conclusion
3G has a superior voice quality as compared to
WiMax with a reasonable service on the data
front. On the other hand, WiMax is the best bet for
data intensive industries like BPO, KPO etc. The
recent ruling on the legitimacy of the VoIP
services in India has made room for WiMax's voice
services as well.. It has been proven that in the
areas where there is an upgrade possible from the
2G networks, the 3G technology is more cost
effective. This is relevant in the urban areas
14
where the networks can be upgraded and with a
small change in the handsets the customers can
enjoy the advantages of the 3G data services as
well. In rural areas, where the access or
connectivity is still an issue, WiMax has been
proven to be a better proposition. This is the
competition model that arises from the analysis.
Another way to look at the situation is through a
cooperation model where each technology can
make use of its relative advantage to serve a
particular market. BSNL's strategy is to invest in both
the technologies and create a network of 3G services
with WiMax hotspots taking the burden of data in areas
with high data rates. The high data rates are
predominantly required in urban and industrialized
areas. This means that both 3G and WiMax can
cooperate to provide the best services of data and voice
in all areas.
Brandenburgr (1996) summarizes this effect as the
Coopetition model wherein depending on the
environment the technologies can behave as
competitors and cooperators. The urban areas prove to
be a cooperative playground for the technologies where
3G and WiMax can pool in their resources to give the
best benefits to the consumers while the rural areas are
going to be a competitive turf for the two technologies.
The digital divide in the technology will bridge out when
3G develops better cost efficiency in the initial
investment while WiMax develops handsets that can be
used as mobiles.
Author(s)
Sumit Sharan is a second year PGP student at IIM
Bangalore He holds a M. Tech and B.Tech (Majors.
in Electronics and Electrical Communication
Engineering and B.Tech (Minor) in Computer
Science and Engineering from Indian Institute of
Technology (IIT) Kharagpur. He can be reached at
sumits07@iimb.ernet.in.
Gaurav Dharmadhikari is a second year PGP
student at IIM Bangalore. He holds a B. Tech in
Petroleum Engineering from ISM Dhanbad.
Special acknowledgement is also due to Mr.
Rajkumar Upadhyay, DGM and CIO, BSNL
Bangalore for his valuable suggestions and
comments on the paper.
 Campus Thoughts

References
1. Alvarion Networks: A White Paper-
Comparison of 3G and WiMax Networks at
www.alvarion.com/mobilewimax for the
spectral efficiency and throughput rates for
3G and WiMax

2. Wiki Article on Karnataka at

www.wikipedia.org for State level data for the
model.

3. IEEE 802.16 Broadband Wireless Access

Working Group Wookbong Lee and Binchul Ihm
from LG Electronics at
http://www.ieee802.org/16/tgm/contrib/C8021
6m-07_007.pdf

4. Spectrum Analysis-The Critical Factor in 3G

versus WIMAX by MARAVEDIS Telecom Market
research and Analysis at
http://www.frontpagepr.com/clients/maravedis
/research_report_toc/3G_vs_wimax_spectrum_t
oc_1-2006.pdf

5. Internet news portals

www.livemint.com,www.economictimes.com
www.timesofindia.com.

AUDIRE - IIM ABC CONSULTING REVIEW 15

4
Source - Image: © Pedro Simoes, Creative Commons Attribution, Flickr

Source - : Image: © Izzo.mv, Creative Commons Attribution, Flickr


BRANDING AND
EMERGING MARKETS
Abstract
This article looks at the various causes behind the
lack of global brands from developing economies
and finds that their pattern is similar to countries
like Korea and Japan that have developed
recently. Based on this it predicts that it is likely
that global brands will emerge over time from the
developing economies, first based on functional
characteristics; only later to become full fledged
global brands. At the same time, it is likely that a
number of niche luxury brands from these
countries will also develop.
Introduction
A recent blog post1 asked the question whether
Indian brands really exist. The question was partly
motivated by a study of the top global brands2, 3
which showed that there were no brands from the
BRIC countries in the top 100 brands of the world.
Korea was the most “developing” country that had
any brand (Samsung and Hyundai) in the list. Quite
apart from the study, one just has to look around
to note that most of the brands one sees are from
the developed markets.
This article attempts to understand the reason for
the phenomenon and the reasons behind it. It next
tries to suggest the most likely course of evolution
over time.
What is a brand? The Consumer's View
For the consumer, a brand is a collection of
symbols, experiences and associations connected
with a product, a service, a person or any other
artefact or entity4. For the consumer, the brand is
an identifier for what he consumes. The brand
helps him remember and allows him to find what
he wants. In order to achieve this goal, it is
Campus Thoughts
obvious that the user needs repeated contact with
the brand. Thus strong brands take time to get
established.
The Producer's View
For the producer, a brand is an enabler that allows
competing on platforms other than price. Thus
branding is necessary when, and only when,
targeting customers who are willing to pay a price
premium. In some cases, it would include
manufacturers of quality products branding
would allow the user to identify high quality
products from low quality ones. As economic
theory tells us, the importance of a brand is lower
when the user can judge the attributes of a
product directly rather than having to rely on the
brand.
Why don't Developing Economies have
Strong Global Brands?
Understanding the definition of brands and the
history of developing economies provides
meaningful insights to this question. One of the
first possible reasons that come to mind is lack of
resources. However, given that the Chinese and
Indian economies are third and fourth largest in
the world, and that they do have some really large
companies, this seems unlikely. A second possible
reason is lack of time most developing economies
have moved comparatively recently to a market
based economy from a regulated economy where
brands did not have much of a function. A related
factor may be the lack of necessary expertise due
to the earlier lack of importance of branding. A
study by BusinessLine6, for instance, shows that
the assets of Indian companies tend to comprise
more of tangible assets rather than intangible as
compared to, say, the USA. Another reason may be
that these economies primarily compete on price
AUDIRE - IIM ABC CONSULTING REVIEW 17
 AUDIRE - IIM ABC CONSULTING REVIEW
and hence do not need strong brands. A related
reason may be the lack of quality products or a
perception of the same, implying that without
quality it would not be possible to compete on a
basis other than price.
Future Outlook
Lessons of History
Much can be learnt from the two countries that
have closed the gap from underdeveloped
economies to developed economies in the last
century Japan and Korea. These began as low cost
manufacturing hubs, nurtured industries till they
reached a critical size, began developing quality
products (often) via the OEM route and finally
developed global brands. Thus we see a step by
step evolution in a developed economy's brands.
Initially these compete on price. Over time, the
brands grow and reach a critical size. Next the
brands compete on functional dimensions,
possibly because these require comparatively
lesser trust as the buyer can easily identify them.
Once sufficient time has passed and the trust
established, do these become global brands. An
example for the same is provided by Samsung7. In
its early years, Samsung was protected by the
Korean government to enable it to grow. The
government also enabled access to advanced
electronics technology to enable it to
manufacture memory chips. Over time, it grew
and competed as a low cost memory chip
manufacturer and later invested in
R&D to become a major global electronics brand.
Possible evolution
If we look at the possible reasons for the
developing countries not having strong brands in
the light of the experiences of Japan and Korea,
we realize that each of these were overcome with
time in a manner that today, in retrospect, seems
a natural progression.
It is likely that similar trends will occur in the
countries that are currently developing. We
18
already see a number of industries having reached
the critical size. A number of them have also made
oversees acquisitions that have brought them
control over strong global brands (e.g. the
acquisition of Jaguar and Land Rover brands by the
Tatas). A large number of local brands do exist (for
instance Tata, Bajaj and Goodrej).8 It is possible
that some of these will become functionally
superior to the currently established global
brands and will, over time, become global brands
in their own rights.
Some authors also claim that brands that work in
India (like Nirma) follow a low cost model. While it
is undoubtedly true that the businesses behind
these brands have been successful, it is unlikely
that the brands are strong in terms of being able
to command a price premium. The brands serve
merely as placeholders in the consumers' memory
rather than assets of value.
Another possible evolution is more the
entrepreneurial way. A number of brands like Fish
Fry, Amrut Whiskey, Urvashi, HiDesign and Cobra
beer are carving niches in the global market10 and
have plans to become global luxury brands in their
selected niches. While they are miles away from
becoming a Gucci, they have been able to stave
off the image of India as a low cost destination
and, in a couple of cases, leverage on the Indian
mystique.
Author(s)
Nirmesh Mehta is a 2nd Year PGP student at IIM
Ahmedabad. He holds a Bachelor's degree in
Electrical Engineering from the Indian Institute of
Technology (IIT) Bombay and can be reached at
7nirmeshm@iimahd.ernet.in.
nd
Rukesh Reddy is a 2 Year PGP student at IIM
Ahmedabad. He holds a Bachelor's degree in Civil
Engineering from the Indian Institute of
Technology (IIT) Bombay and can be reached at
7rukeshr@iimahd.ernet.in.
 Campus Thoughts

References
1. “Do Indian Brands Really Exist?”,
http://www.mouthshut.com/diary/hhebsqmmm
/Do-Indian-brands-really-exist (Last accessed on
15 January 2009)

2. “Best Global Brands 2008”,

http://www.interbrand.com/best_global_brands
.aspx?year=2008&type=asc&col=1&langid=1000
(Last accessed on 15 January 2009)

3. “Best Global Brands 2008”,

http://www.interbrand.com/images/BGB_report
s/BGB_2008_EURO_Format.pdf (Last accessed
on 15 January 2009)

4. “Brand”, http://en.wikipedia.org/wiki/Brand
(Last accessed on 15 January 2009)

5. “Creating International Food Brands from

India”,
http://www.iimb.ernet.in/~rishi/foodpro%20dec
03.PDF (Last accessed on 15 January 2009)

6. “How India Inc can leverage brands”,

http://www.brandfinance.com/Uploads/pdfs/In
diaMVBrands2004.pdf (Last accessed on 15
January 2009)

7. “Samsung”,
http://en.wikipedia.org/wiki/Samsung (Last
accessed on 15 January 2009)

8. “Brands that Built India”,

http://sify.com/finance/fullstory.php?id=144904
22&page=15 (Last accessed on 15 January
2009)

9. “Can Indian Brands Survive”, http://www.india-

seminar.com/2001/498/498%20rama%20bijapurk
ar.htm (Last accessed on 15 January 2009)

10. “Small Indian Brands, Big Global Ambitions”,

http://www.magindia.com/manarch/news/man3
6653.html (Last accessed on 15 January 2009)

11. “Building Brands in Emerging Markets”,

http://www.bizcommunity.com/Article/196/82/
30478.html (Last accessed on 15 January 2009)

AUDIRE - IIM ABC CONSULTING REVIEW 19

20
Source - Image: © Bruce, Creative Commons Attribution, Flickr

FRAMEWORK FOR ANALYZING
ENTREPRENEURIAL ACTIVITIES
Abstract
Entrepreneurship and the media industry have a
number of features in common. This paper aims
to explore the relationship between the two and
to create a framework for analyzing
entrepreneurial ventures in the media industry,
particularly magazines. This study first defines
the various terms under discussion and identifies
key properties of the magazine market. It
identifies parameters from entrepreneurship
literature, and then details magazine-specific
dimensions to ensure all properties of the
magazine market are dealt with.
Introduction
Entrepreneurship has often been considered as
the task of creating, innovating and developing
new ways of conducting business. It has been
described as a process that involves spotting new
opportunities in the product, process or market
and developing ways to exploit these
opportunities. The media industry can be
considered as similar to entrepreneurship, given
its focus on creating and delivering new content to
the user. Given the technological advancements in
the recent few years, opportunity identification
and exploitation have become essential for the
survival of any media firm. Our study looks at this
similarity between media, especially magazines,
and entrepreneurship. It aims to develop a
framework for understanding different
phenomena and analyzing entrepreneurial
activities in the magazine industry.
Our study is structured in the following way. The
first section deals with the definitions of
entrepreneurship and the media industry, with a
focus on magazines. The second section develops
a framework for analyzing entrepreneurial
activities in this sector. The third section delivers
the conclusions from this analysis.
Campus Thoughts
Definitions
Entrepreneurship: The term entrepreneurship
has been defined in a number of different ways;
ranging from the classical definition of the term as
change agents and innovators (Schumpeter, 1934)
to Casson's view ( 2003, p.225) that “a modern
synthesis defines the entrepreneur as someone
who specializes in taking judgmental decisions
about the coordination of scarce resources”.
Shane and Venkataraman (2000) defined the field
of entrepreneurship as the “ scholarly
examination of how, by whom and with what
effects opportunities to create future goods and
services are discovered, evaluated and
exploited.” Opportunities can occur either in
product markets (Venkataraman 1997) or in factor
markets, for instance, when new materials are
discovered ( Schumpeter, 1934). For the rest of
the paper, we will stick to the above definition of
entrepreneurship, and make the same
assumptions as they do: individuals are unique,
and they are be able to identify opportunities,
which are objective.
Media: It is interesting to note that Schumpeter
drew an interesting metaphor between an artist
and an entrepreneur, calling them both as
dynamic, energetic and capable of creating
something novel (Swedberg, 2003). It is hence no
coincidence that the media industry is to a large
extent associated with entrepreneurial activities.
Moreover, it would be valid to consider
entrepreneurship in the media industry as
different from other industries, and Hoag (2006)
confirmed this when they came to the conclusion
that low barriers to entry and media's power to
influence encouraged media entrepreneurship.
Before we further explore the relation between
media and entrepreneurship, let us consider the
definition of the term media, which again has
AUDIRE - IIM ABC CONSULTING REVIEW 21
 AUDIRE - IIM ABC CONSULTING REVIEW
witnessed multiple definitions. According to
Krippendorff (1986), “mass media is the generic
term for newspapers, book publishing, radio and
television. Other media include the recording
industry, movie industry and theatre. All media
are associated with more or less elaborate forms
of audience participation.” Aris and Bughin (2005)
came up with a more precise definition where
they said “the media industry is a unique
crossbreed of creativity and business, comprising
a wide array of segments…”. According to them,
the core of all media businesses revolved around a
perishable commodity (content) which
differentiates different forms of media, as well as
one business from another, within the same media
sector.
With so many diverse forms of media available, we
realized it would be more fruitful if we restrict our
analysis to just one sector. For this purpose, we
have chosen the magazine industry, more
specifically that of consumer magazines.
Properties of Magazine Market
Market structure: Consumer magazines have a
highly fragmented and competitive market. The
number of titles is increasing and there is
moderate concentration in the industry There is a
wide difference across markets in terms of
number of titles, advertising income and so on,
with publishing remaining predominantly a
domestic industry. (Cinzia Dal Zotto, 2008, Picard,
Robert G., 2002)
Distribution: Consumer sales happen either
directly through subscriptions, or single copy sales
through retailers. It has been observed that 60% of
newsstand magazines remain unsold, and there is
an increasing reliance to use newer modes of
distribution like large retailers ( general good
stores, grocers, etc). (Cinzia Dal Zotto, 2008)
Advertisement friendly: It has been noticed that
magazines are extremely good for brand
advertising, due to their strong positioning and
loyalty. Compared to any other mass medium,
they are best suited to provide high reproduction
quality. This benefits advertisers who would
believe their products are better portrayed on
better coated stocks. (Cinzia Dal Zotto, 2008)
22
With these properties in context, the next section
will attempt to create a framework for
interpreting and analyzing entrepreneurial
activities in a magazine publishing firm.
A Conceptual Framework
We have surveyed a subset of entrepreneurship
literature, to identify key dimensions along which
entrepreneurial activities can be analyzed. First,
we identify the most important factors common
for all entrepreneurial firms, after which
we present the dimensions which we
feel are key to the magazine publishing industry.
Common Dimensions for any
entrepreneurial firm
Innovativeness: From the research in
entrepreneurship literature, it is clear that a key
success driver for an entrepreneurial venture is
the innovative ability of the entrepreneur
(Schumpeter, 1934). According to Lumpkin
(1996), innovativeness may have significant
commonalities with product-market and
technological change, and represents a critical
means through which firms pursue new
opportunities.
Proactiveness: Penrose(1959) claimed that the
vision and imagination of entrepreneurial
managers is essential to drive growth of firms.
Venkataraman (1989) broadened the earlier
narrow scope when he suggested that that
proactiveness refers to processes aimed at
anticipating future needs by "seeking new
opportunities which may or may not be related to
the present line of operations, introduction of
new products and brands ahead of competition,
strategically eliminating operations which are in
the mature or declining stages of life cycle". We
feel that proactiveness, with its focus on
identifying new opportunities, is essential for the
success of any entrepreneurial venture.
Also, we find that all the characteristics of
entrepreneurial orientation as listed by Lumpkin
(1996) were not directly related to any facets of
the media industry. We also see that the above
dimensions of innovativeness, while essential for

ENTREPRENEURIAL VENTURE
AUDIENCE
Brand
Innovative
Community
ness
Formation
Fig1. Framework for analysis entrepreneurial activities in the magazine industry
new venture success, address only partly, the
characteristics of the magazine industry. While
innovativeness and proactiveness can be used to
develop new products, and thus compete in a
fragmented market, it may not serve well enough
to attract consumers to your magazine. Moreover,
it pays no attention to the distribution mechanism
or advertisement-friendly nature of magazines.
Any framework aimed at analyzing magazine
entrepreneurial ventures will hence have to take
into account more criteria. In the forthcoming
section, we explore the media-specific
dimensions which we feel are key to the consumer
magazine publishing industry.
Media-specific dimensions
Brand community formation
It has often been noticed that a community of
users is formed around a brand, and a powerful
brand is more likely to attract and sustain a
community around it. According to Davidson
(2007), “Amongst the antecedents of community
formation, five characteristics are said to
predispose a brand to this type of uptake by
consumers, including a defined brand image,
aspects of hedonism, history, public consumption
and overt competition.” A summary examination
of magazines indicates that they satisfy all these
properties, hence naturally assist brand
community formation.
Campus Thoughts
COMPANIES
Advertiser
Proactive
Involvement
ness
Strategy
Advertiser-involvement strategy
Magazines come in better quality paper, with
better reproduction, and superior digital imagery.
Moreover, they provide highly specialized and
focused content. These two features make them
ideal for brand advertising. A magazine would thus
be best positioned to succeed if it can pursue a
suitable advertiser-involvement strategy, that
will garner greater revenues, which in turn will be
able to guarantee better content.
With regard to the properties of magazines that
we had outlined earlier, we notice that brand
community formation is essential for a
competitive market a stronger brand will be
helpful to defend against competitors, and for
subscription/retail sales distribution a stronger
brand will have greater number of direct
subscribers. Moreover, an advertiser-involvement
strategy affords the opportunity to uniquely
utilize the advertisement potential of the
industry.
Thus, our framework to analyze entrepreneurial
activities, and determine its success, would have
two dimensions derived from entrepreneurship
literature, namely, Innovativeness and
Proactivenes, and two dimensions derived from
the particular features of the magazine industry,
namely Brand Community Formation, and
Advertiser-Involvement Strategy. With these
dimensions, we think it would be possible to
AUDIRE - IIM ABC CONSULTING REVIEW 23
 AUDIRE - IIM ABC CONSULTING REVIEW
explain a majority of the phenomena that occur in
the magazine entrepreneurial industry.
Conclusion
We would recommend the application of a number
of entrepreneurial venture of magazines case
studies to verify the framework. It would also
generate newer perspectives into further aspects
of each dimension. Finally, further research
would enable extension of this framework to
media industries other than magazines also.
Author(s)
G Krishnamurthy is a second year PGP student at
IIM Ahmadabad
References
1. Aris, Annet & Bughin, Jacques (2005).
Managing media companies: Harnessing
creative value. Chichester: John Wiley & Sons
2. Casson, M. (Ed) “Entrepreneurship, business
culture and the theory of the firm”, in Acs.
Z.J. and Audretch , D.B. (Eds), Handbook of
Entrepreneurship Research, An Interdisciplinary
Survey and Introduction, Kluwer Academic
Publishers,
3. Cinzia Dal Zotto (2008). Lecture September
19th:Print (Magazines and Books). Retrieved
2008-10-02, from JIBS website
http://jibsnet.hj.se/documents/files/download
/520098109/6095252702692513405/080919_Mag
azine&Books_Cinzia.pdf
4. Davidson, L., McNeill, L., Ferguson S.
Magazine communities: brand community
formation in magazine consumption.
International Journal of Sociology and Social
Policy. Vol. 27 No. 5/6, 2007. pp. 208-220,
Dordrecht, pp. 223-46.
5. Hoag, A. and Compaine, B. (2006). Media
Entrepreneurship in the era of big media:
Prospects for new entrants.
6. Krippendorff, K. (1986). Web Dictionary of
Cybernetics and Systems. Retrieved 2008-10-05
from
http://pespmc1.vub.ac.be/ASC/MEDIA.html
24
7. Lumpkin, G T, Dess, Gregory G.
Clarifying the entrepreneurial orientation
construct and linking it to performance.
Academy of Management. The Academy
of Management Review. Briarcliff Manor:
Jan 1996. Vol. 21, Iss. 1; pg. 135, 38 pgs
8. Penrose, E.T. 1959. The theory of the
growth of the firm. Oxford, England:
Oxford University Press.
9. Picard, Robert G. (2002). The Economics
and financing of media companies.
Fordham University Press, New York
10. Schumpeter, J. A. (1934). The theory of
economic development. Cambridge, MA:
Harvard University Press.
11. Shane, S. A general theory of
entrepreneurship: The individual-
opportunity nexus.” New Horizons in
Swedberg, R. The cultural entrepreneur
and the creative industries: beginning in
Vienna. Journal of Cultural Economics,
Volume 30, Number 4 / December, 2006.
12. Shane S., Venkataraman.,S (2000). The
promise of entrepreneurship as a field of
research. Academy of Management. The
Academy of Management Review, 25(1),
217-226. Retrieved October 5, 2008,
from ABI/INFORM Global database.
(Document ID: 48157168).
13. Venkataraman, N. 1989. Strategic
orientation of business enterprises: The
construct, dimensionality and
measurement. Management Science, 35:
942-962
14. Venkataraman, S. 1997. The distinctive
domain of entrepreneurship research: An
editor's perspective.
J. Katz, R. Brockhaus, eds. Advances in
Entrepreneurship, Firm Emergence, and
Growth, Vol. 3. JAI Press, Greenwich,
CT, 119-138.

GLOBAL ECONOMIC SLOWDOWN:
THREAT OR OPPORTUNITY FOR INDIA?
Abstract
This paper gives a brief account of the present
Global financial turmoil, the effects all over the
world and specifically the impact on India. It
delves deep into the implications in the short
term and long term, the opportunities and threat
for Indian economy and the industries.
Introduction
The housing bubble in the US had burst and the
sub-prime crisis that resulted has destroyed
investor wealth worth trillions across the world.
The confidence levels have been totally shaken.
This meltdown has forced the regulators of
different economies to take major policy
decisions to stem the liquidity crunch and bring
order in the house. There have been bailouts
announced on both sides of the Atlantic to rescue
the financial houses with enormous liabilities.
India has not been insulated from this crisis. There
has been a large outflow from the stock markets
by the FIIs which has lead to liquidity crunch and
depreciation in the Indian Rupee. RBI has shifted
its policy from inflation priority to growth priority.
Due to the liquidity crunch there has been a slump
in the real estate prices, slowdown in the growth
in the short term which has in turn lead to job cuts
in various sectors. The IT industry has been
affected in the short term as the major share of
clients is in the Banking and Financial Services
sector. On the whole the growth is predicted to
slow down to 7-7.5% for the year 2008-09 as
compared to an average of little less than 9% in
the past few years.
Looking at the brighter side, the current market
Campus Thoughts
conditions offer significant opportunities to
acquire overseas businesses at lower values and
necessity to look at inorganic growth as an
important strategy. The BPO and KPO captives of
the global financial players are up for grabs for the
IT companies in India. India's financial sector has
comparatively been insulated from the risks in the
international markets mainly due to a strong
regulatory framework. India has ensured that its
regulatory checks and balances prevent any
undue exposure to global risk and the financial
sector is prepared to cushion adverse situations.
The road ahead is tough in coming months but we
will witness more positives in long run. The
environment looks weakest in short run, and yet
there remain pockets of opportunity. This is the
time to bring in innovations in operations and calls
for better regulatory policies to tide the storm.
Global Meltdown
The housing bubble burst in the US and the sub-
prime crisis that resulted from the real estate bust
in the US has destroyed investor wealth worth
trillions of dollars across the world. The bust,
started from US Financial firms, has claimed high
profile investment banks like Bear Sterns (taken
over by J P Morgan with help from the US Federal
reserve), Lehman Brothers (filed for bankruptcy
on September 15 leading to the global turmoil
since then) and, one of the most venerable
insurers in the world, the American International
Group (taken over by the US government for about
$85 billion). It began with defaults of dodgy
mortgages, but soon spread to healthier part of
debt markets. Further debt defaults are being
triggered by fear, panic selling, a downward spiral
of decreasing asset prices, and margin calls. This
AUDIRE - IIM ABC CONSULTING REVIEW 25
 AUDIRE - IIM ABC CONSULTING REVIEW
crisis is very big and is spreading to other asset
classes. As per IMF's estimate, the US banking
system has suffered a loss of $1.4 trillion, up
dramatically from its April projection of $945
billion. The US Senate has passed a $700 billion
financial market rescue package as a bailout from
this financial turmoil. In its latest statement, IMF
is predicting zero growth for US economy in 2009.
This meltdown has crept into other parts of world.
After US, the first stop was Western Europe. UK
government has lined up an $850 billion of rescue
plan and it may nationalize Royal Bank of
Scotland. The total liabilities of Barclays of 1300
billion Euros exceed Britain's GDP. In Belgium, the
government took a partial control of the
struggling Fortis Bank. The collective bailout
packages in the US and Europe, at present at
about $ 1.8 trillion
As expected, the next stop of this financial
disaster is turning out to be Asia. Asian economies
are moving towards recession and a few big firms
are wiped out. Japanese Life Insurance firm
Yamato failed with $2.7 billion in debt and Tokyo
may set up a $100-billion fund to prop up smaller
lenders. With two quarters of falling GDP
Singapore economy is now technically into
recession. Manufacturing hub China is also
expected to face the music as their exports
predominantly to US are manufacturing oriented
and will be affected in this scenario.
The similarity of market behavior across countries
is an evidence to prove that there is something
else, deeper than the causes that are usually given
for the subprime crisis in the US. The subprime
crisis in the US is only a symptom of this
fundamental problem. The most fundamental
problem is found in the swings of overconfidence
that have been seen in many countries since the
1990s. The overconfidence shared by millions,
billions, of people. And this confidence has been
very strong until recently. In the US, consumer
confidence rose to near-record levels at the time
of the peak in the stock market in the year 2000.
This high level of confidence, shared by many
26
other countries as well, was related to the boom
in the markets and economy at that time. The
booming markets and economy were in turn
substantially buoyed by the high confidence, in a
feedback loop. Recently, confidence has been
fading. In the US, confidence has fallen sharply
since 2006; it has now plunged deeper than lowest
levels reached in the 2001 recession. This decline
in confidence is seen in other countries as well.
When people expect good performance from their
investment assets, they tend to bid up their
prices. That is what was happening in many places
around the world in the years leading up to the
current crisis, until markets collapsed.
The Indian Impact
In India, FIIs have exited their positions worth
$11.8 billion in the stock market and there has
been outflow which has hurt the rupee. The
reason for this outflow is due to the financial
pressure and liquidity crunch in their home
countries rather than the fall in confidence in the
Indian economy. The implications are that the
stock markets have been beaten and Nifty traded
around 2500 level, more than 55 percent lower
than what it was a year back.
Benchmarks Current Rate Change
Cash Reserve Ratio 6.5% Cut by 1 bps
LAF Repo Rate 8% Cut by 100 bps
SLR Requirements 23.5% Cut by 150 bps
The overnight inter-bank lending rates shot up to
22 percent; Indian Rupee slumped to Rs 50.15 to a
dollar its lowest close in more than six years.
There is also a growing trade and current account
deficit following a steep rise in oil and non-oil
imports. India is predominantly a major importer,
and due to the depreciation in the Rupee and
rising oil prices the gap has widened to a large
extent. Due to the resulting liquidity crunch the
corporate borrowings from the global markets are
 Campus Thoughts

S&P CNX NIFTY: 4835.30 29/05/2008

6287.95

5917.55

5547.15

5176.75

4806.35

4435.95

4065.55

3695.15

3324.75

2954.35

2583.95

24/10/2007 03/01/2008 13/03/2008 30/05/2008 07/08/2008 24/10/2008

Fig 1: 1 year performance of Nifty

as of 24-Oct-2008
50

48

46

44

42

40

38
Jan08 Mar08 May08 Jul08 Sep08
Copyright 2008 Yahoo! Inc. http://finance.yahoo.com/
Fig 2: 1 year USD versus INR

becoming increasingly difficult. With investor
sentiments in the equity market at its lowest,
raising money for new investments through public
issues is on hold, and liquidity in the economy is
fast drying up.
RBI's policy shift
To counter all these changes RBI has made a major
policy shift from inflation priority to growth
priority. To ease the liquidity in market it has
implemented a few temporary measures. It has
reduced the CRR requirements for the banks by
150 bps, cut the LAF Repo rates by 100 bps (a
change after 4 years) and reduced the SLR
requirement for the banks by 150 bps. This has
lead to the infusion of 1, 85,000 crores into the
system and has enabled banks to draw funds. The
inflow of liquidity in system will increase the
inflation which is already in double digit.

AUDIRE - IIM ABC CONSULTING REVIEW 27

 AUDIRE - IIM ABC CONSULTING REVIEW
The sentiments are low and investors are looking
beyond these temporary relief measures. As every
coin has two sides; the current scenario has some
positive as well as negative aspects associated
with it.
Threats and Negative Effects
Sector slowdowns and job cuts
In the short run, slowdown in jobs is inevitable as
companies like Lehman Brothers, Merrill Lynch,
AIG have their captive research units, brokerage
arms, investment banking arms in India which
employ several hundred thousand people. Indian
job market has seen the biggest dip in last 8
quarters. Sectors like real estate, aviation, have
already started downsizing their employee
strength and trimming the packages, recent
examples include Jet-Airways, Kingfisher Airlines.
The national carrier, Air India, is inviting almost
half its workforce of 33,000 to join a voluntary
leave scheme for 3-5 years.
Indian real-estate firms will be amongst the worst
sufferers as real estate prices in Indian towns and
cities are likely to come down by 10-15 per cent in
the next few months. Most real estate developers
who depend on this flow of money may find it
difficult to complete their projects. Also, buyers
too have dried up because of unaffordable high
real estate and interest rates. The sluggish real
estate will also affect demand for cement, steel
and other construction materials.
Effects on imports and exports
Importers are the worst hit by the current
currency depreciation. Importers are in huge
demand of dollars to offset their positions and to
pay back the sellers. Currency fluctuations have
squeezed their balance sheets. This in turn has
increased the input costs of many industries.
Conditions might worsen if RBI doesn't intervene
Rupee might fall to 51-52 levels in coming weeks.
As the rupee is falling, exporters are delaying
bringing in export earnings to the country in the
expectation that they will get more rupees later
which reduces the inflow of dollars. At the same
28
time, importers are buying dollars in advance to
meet their import requirements in fear of further
depreciation. Exporters are not booking hefty
profits on Rupee depreciation as US market is
facing recession and hence orders are either being
cancelled or postponed. Due to their hedging
positions they are losing heavily on the margins
too.
Regulatory effects and declining growth
rate
The temporary relief measures will affect the
common man as they will lead to increase in
commodity prices due to RBI's policy change. In
the long run, Indian growth is expected to slow
down because of recent turmoil. The current
global recession is expected to remain for the
next three-five years, particularly, in the United
States (US), Europe and Japan. The Indian
markets bottomed out when FII investments in
India came down to a range of USD 40-60 billion. As
per estimates, the Quarter-on-Quarter GDP at the
end of the year is expected to be at 7%-7.5%. Full-
year GDP growth in 2008-09 is poised to be in the
7-8% range ( as compared to average of slightly
less than9% annually in the past 4 years). This rate
can go down to 6%-6.5% by early next year unless
there is a significant stimulus in terms of liquidity
and drop in interest rates. India is not an insulated
market any more.
Opportunities Ahead
The fundamental forces of economic and
demographic evolution have placed the Indian
financial sector at a very exciting stage of growth.
India's financial sector has mostly been insulated
from the risks in the international markets mainly
due to a strong regulatory framework in spite of
the reforms in the past decade. It is better
prepared to cushion adverse situations than many
economies at the moment.
One of the positive aspects for Indian economy is
more inflow from NRIs in coming times as rupee
has fallen against the dollar. We expect more

investment in non-resident ordinary (NRO)
deposits or relatives' domestic deposits as interest
rates are high and the benefits will be two fold if
the rupee appreciates in the future.
A report by leading consulting firm KPMG says that
because of current financial crisis, India will move
up to 4th place in investment league. The report
titled 'Manufacturing Indi@75' released at a CII
Conference, said a shift in the in the perception of
corporate investors was expected, between 2008-
09 and 2013-14, about India's potential. The
report also says that India will overtake countries
such as UK, Germany and France in the investment
league table. Even countries like Japan,
Singapore, Dubai, Malaysia and Spain are
expected to be relegated. This is a positive sign
for Indian economy as a whole in long run.
Opportunities for overseas deals
Even in this liquidity tightening situation, Indian
M&A market is performing fairly good. The total
number of M&A deals announced in September
was 35 for total value of $3.69 billion as against 31
deals amounting to $4.63 billion in the month of
August. Current market conditions offer
significant opportunities to acquire overseas
businesses at lower values and the necessity to
look at inorganic growth as an important strategy.
Indian companies looking for strategic overseas
deals, both in financial and non-financial sectors
to increase their global presence can pounce on
this opportunity.
Distressed assets in the mortgage and other
financial services industry are available to be
picked up by Indian companies the assets are
laden with debt and a lack of good forecasts on
future business. The changing investment banking
landscape in the US is opening the door to
boutique Indian investment banks that have a
strong investment advisory and research presence
to expand in the US.
Campus Thoughts
IT sector future outlook
Indian IT sector will be hurt in coming months but
it offers tremendous opportunities in long run. In
case of US companies, revenue growth is hurt and
companies will look at cost reduction by
increasing outsourcing and moving more business
to cost efficient locations like India to grow
profits.
IT companies can also look for IP and product
related investments especially in the US. BPO's,
especially captives, with significant financial
services exposure are available for investments
for Indian players, the recent example is TCS
acquiring Citi BPO arm for $505 million. This deal
saw for the first time a bank selling its core
banking BPO operations to a third party and it
makes TCS a one stop shop with integrated IT-BPO
offerings. In this way IT companies can look to
broaden their horizons and offer integrated
services.
Future prospects for Indian financial Sector
In recent turmoil, when major insurance and
banking firms are battling for existence, Indian
insurance firms have escaped with minor injuries.
India doesn't have a negative growth like countries
like Singapore, although growth figures may come
down. For example, Insurance industry in India
has continued to see fresh inflows of money both
in terms of new business that is being written.
While there has been a bit of a slowdown on new
business, there is still positive growth on new
business for most private players. The sector will
be growing at faster pace once the economy
recovers. For banking sector, crisis throws up
lessons about credit derivatives, about risk
transmissions and about regulations staying ahead
of innovation. After every economic recession, it's
the strong and resilient that survive. We expect to
have more mature and strong firms in banking and
insurance sector in long run and a more inclusive,
robust and efficient financial system.
AUDIRE - IIM ABC CONSULTING REVIEW 29
 AUDIRE - IIM ABC CONSULTING REVIEW

Conclusion
World is passing through a turbulent phase in the global
economy which will once again test the economies'
resilience as it had done during the currency crisis in
south east Asia, the spill-off of which is being witnessed
in India as well. While in current globalized world India
can never be fully insulated from global happenings, it
is more likely to be affected by sentiments rather than
fundamentals given the way it has built its economy.
Some serious work needs to be done to improve the
quality of the financial markets, both expanding
regulation and consumer protection, and we expect
more robust framework for reforms by policy-makers in
coming years.

The road ahead is tough in coming months but we will

witness more positives in long run. The environment
looks the weakest in recent times, and yet there remain
pockets of opportunity. These areas, if tapped
intelligently, would enable India to ease the blow of this
financial crisis and help it tide through the tough times.
This is the time where there will be restructuring and
consolidation, innovations in operations efficiency and
sound and resilient regulatory setups. Scope for
overseas deals and IT sector impart a host of
opportunities. India's domestic demand led production
and services in various sectors, whether it's BFSI, Retail
or any other sector, provide ample scope in long run.

Author(s)
Radha Krishnan R is a PGP student at IIM Calcutta
and can be reached at radakrishnan.r@gmail.com

Ravi Bhatia is a PGP student at IIM Calcutta and

can be reached at ravibhatia84@gmail.com

30

INTERESTING TIMES:
THE US AUTOMOTIVE SECTOR
Abstract
The US automobile industry has taken a massive
setback in recent past.” to “The US automobile
industry has taken a massive setback in the recent
past.”
Introduction
In the times of global uncertainty, the US
automotive sector makes for a very interesting
study. As of December 2008, the automotive
industry accounts for about 2.3 percent of the US
output (down from about 5% at the beginning of the
century) and about 20% of the shrinkage in
manufacturing sector can be attributed to the
automotives. That there has been a massive
setback for the entire sector is undisputable. Sales
have dropped to an annualized rate of only about
10 million, where the industry boasts of a capacity
of over 17 million cars per year. It has been argued
that in order for the likes of GM and Ford to make
profits, annual sales of over 15 million cars are
required, where Toyota can do with only 12 million.
$125
$100
$75
$/bbl
$50
$25
$0
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
Futures Strip
Source: Deutsche Bank Global Markets Research
EXHIBIT 1: CRUDE OIL SPOT PRICES. 2002-2010 (E)
Campus Thoughts
This article makes an attempt to understand the
woes of the Detroit big three (GM, Chrysler and
Ford), and looks at the possibilities in the near
future.
Recounting the Recent Events
The timeline of the crisis is rather easy to trace.
The first jolt came from spiraling fuel costs, with
crude touching $100 a barrel. In the recent past,
the Detroit big three had focused on
manufacturing the high margin SUVs and trucks
(SUVs on an average had profit margins of about
20%, as against the 3% margins on the average
small car). As fuel prices skyrocketed, the sales of
SUV began to dip with customers beginning to
worry about fuel efficiency. As customers moved
towards smaller cars, it was Toyota and Honda
who were making merry while the big three
suffered. Next came the credit squeeze. And this
blow was sudden. In the blink of an eyelid, the
entire financial market seized up and credit
facilities dried up. The automotive market –
Average Strip $59.5
3Q06
2Q07
1Q08
4Q08
3Q09E
2Q10E
Actual DB Forecast
AUDIRE - IIM ABC CONSULTING REVIEW 31
 AUDIRE - IIM ABC CONSULTING REVIEW
18
17
17.30 17.10
16.80 16.60 16.90
16
15
14
13
12
11
Source : Deutsche Bank Global Markets Research
10
2000 2001 2002 2003 2004
March Exp. June Exp.
EXHIBIT 2: US AUTO SALES (MILLION VEHICLES)
already reeling from impact of the oil shock could
not recover, and went into a tailspin. Even though
the oil prices have receded on the back of a
worldwide economic slowdown, there has
virtually been zero positive impact on the
automotive industry [Exhibit 1].
As the months have passed by, the outlook for the
future begins to look very bleak indeed. For the
first time in decades, the sales have dipped under
14 million [Exhibit 2], and if December predictions
are anything to go by, 2009 would be worse. Given
that the current state of the market were to be
maintained, it is more than likely that the next
three years would see all automotive
manufacturers (relying primarily on the US
market) incurring substantial losses.
The Big Three: Successful Enterprises
As we try to develop an understanding of the
automotive market, we need to get some facts
right about the big three who control about 45% of
the US auto market. That accounts for more than 8
million vehicles bought by Americans, a huge
stake in the largest car market in the world, which
means that it would be impossible to replace the
big three overnight. The leadership team at the
helm of the Detroit big three is also quite
fantastic, to say the least. The three CEOs have
successfully carried out more reforms than all
32
16.75
16.10 16.00
16.90
16.50 15.50
15.25
15.00
14.50
14.00
13.30
12.00
13.20
11.50
2005 2006 2007 2008 2009 2010
November Exp. December Exp.
their predecessors even attempted in the entire
history of the three organizations. Together, these
three gentlemen have accomplished more savings
in efficiency than almost the entire industrial US
put together – a feat that can be considered to be
nothing but fantastic.
Importantly, the companies have access to world
class technology. Not only in terms of the
production lines, but also in terms of hybrid
vehicles and fuel efficiency. GM pioneered the use
of hybrid technology in city buses. The experience
means that the company can now leverage the
same for use in SUVs and trucks. Any company
treading on the path of hybrid technology is surely
going to run into a GM patent (as well as a Toyota
one) at one stage or another. And lastly, the
Detroit product is practically equal, or in many
cases much better than the Asian product when it
comes to fuel efficiency.
The Problems
The seventeen billion dollar question, therefore,
is this: what is it that is killing the big three? There
is no correct answer to this; one can only
speculate. Many have said that the big three have
been digging their own graves for decades, and it's
only fair that they are buried now. We would say
that it's the benefits that are killing Detroit. A
system that was at the centre of American

50
40
30
20
10
0
10
20
30
40
USA W. Europe Japan
Source: Deuscbe Bank Globa ! Markets Research
EXHIBIT 3 : GLOBAL AUTO DEMANDS , %YOY
capitalism is more socialistic in nature now. At $30
per hour, Toyota pays one dollar more per hour to
its employees than the wages paid by the big three
to UAW affiliated workers. However, the average
hourly wage of unionized workers in the US is $76
an hour. The differential: benefits, benefits and
more benefits. Consider this: UAW workers and
retirees pay only about 5% of their medical bills;
the national average is closer to 30%. Also, GM
proudly boasts of 3 retirees for every worker.
Where dealing with the retirees is a national
problem, it has taken quite different proportions
in Detroit. The unions treat the Detroit
automakers (as well as some of the larger
component manufacturers) as ATM machines. As
long as the companies are able to generate
enough cash flows to cover benefits and bonuses,
the unions do not care for worldly qualifiers like
profits. Such a system would be an ideal setup for
socialist USSR and communist China, but in the US
– where capitalism is the order of the day (or has
been so till sometime back in the recent past) – it
becomes difficult for one to bite on. The
companies, as well as the employees need to
understand that the cash flows are for
reinvestment in core business, then save for rainy
days, and then to be disbursed back to the
shareholders. The interest of the employee is
nonexistent in the entire setup.
Campus Thoughts
Brazil China India russia
1H08 3Q0P Oct 08 Nov 08
The other problem lies with the socialistic nature
of the state franchise laws that won't let the
carmakers shut down dealers without buying them
out or indulging in costly lawsuits. What this
essentially means is that in order to protect a
dealership, you cannot kill off a weak brand. It is
these “loser” brands that lost billions for the B3,
but getting rid of the dealers is such a costly affair
that the companies cannot even imagine of
treading that path. Hence, where a Toyota gets by
(very well indeed) with only three brands in their
kitty, GM has to bear the costs of eight. Experts
have pointed out that “trimming down” GM's
portfolio to match Toyota's would generate cost
savings in excess of $5 billion per annum.
Lastly, the market for third party consumer
financing has been tightening by the day. And this
problem has not been restricted to the US market.
As a direct consequence, the business prospects
outside the US seem bleak, [Exhibit 3] leading to a
further erosion of the cash balances of the firms.
A Lifeline to Detroit
Till now, we have talked about the big three in the
same light. However, there exists one key
difference: the liquidity the companies are sitting
on. GM and Chrysler are feeling the heat as cash
balances have run out, and it's the bridge loans
provided from the TARP that would help the
companies survive through to March 2009.
AUDIRE - IIM ABC CONSULTING REVIEW 33
 AUDIRE - IIM ABC CONSULTING REVIEW
The one key measure that needs to be adopted in
this case would be restructuring of employee
contracts. Given the threat of bankruptcy and
subsequent job loss, there is expected to be
enough pressure from the government on this
front. Consider GM as a representative. The
reopening of the labor contracts would mean that
that GM's North American fixed costs could drop to
$23 billion by 2010, from approximately $30
billion currently. Given that this were to be
achieved, the company would still require a 13
million market to reach breakeven given the
current market share of about 20%. If the share
drops to 18.5% (which is the more likely outcome
given dropping SUV sales), GM would require a
14.5 million market to reach breakeven. In the
entire setup, Chrysler is unlikely to remain an
independent company given its ownership. Ford,
on the other hand, is likely to benefit from labor
contract modifications and market share ceded by
GM and Chrysler. Firstly, Ford relies less on SUV
sales than GM and Chrysler and has a wider range
of small cars in its offering. Secondly, Ford holds
nearly $30 billion of gross liquidity, which should
prove to be sufficient while operating through the
extended period of weakness.
Salvaging Detroit: The Way Ahead
There are many proactive steps that need to be
taken in order to ensure the survival of the
indigenous auto industry in the US. First and
foremost is cleaning up the balance sheet. The
objectives are quite clear: the automakers need
to reduce the amount of debt they have
accumulated. The best option is to convert most
of it into equity, an option that would be the most
difficult to exercise given the poor performance
of the automotive sector.
The big three also need to take the employee
related liabilities off the balance sheets, which
again is easier said than done. The ideal way
would be to give out a huge sum of cash to a trust
that takes up the responsibility of maintaining the
benefits and the controversial “job banks”. The
problem is also as simple to explain as the
solution: there is no cash. It would seem prudent
34
to offer stocks to the trust instead of the cash – a
proposal that has been very openly opposed by
unions. The fact that UAW declined to take wage
cuts in 2009 indicates that the unions would play
hardball, and industrial policies under Barack
Obama's new democratic regime would be tested.
Next, it becomes important to promote smaller,
fuel efficient cars. The market for smaller cars is
very well developed the world over, and the
success of SUVs in the US has been an anomaly. In
the BRICs, it is simply the affordability that has led
to the success of the small car concept. Japan and
Europe have policies that keep gas prices high.
This has created a very stable market for small,
fuel efficient cars. Activist steps need to be taken
to promote the sale of smaller cars. In line with
this, many of the state franchise laws would also
need a relook in order to enable the big three to
shut down legacy brands and the associated
dealerships.
It is very obvious that unless measures are taken at
every step of the way going forward, the next
page in the stories of the big three would have to
be chapter 11. If that eventuality were to be
realized, the debtors, the unions and the
franchisees would stand to lose everything. It
would be best for these parties to accept
whatever deals they get now, and live with it. The
coming months would see frenzied activity… and
make for interesting times indeed.
Author(s)
Piyush Kharbanda is a second year PGPM student
at IIM Ahmedabad. He has worked as a business
analyst primarily in the automotive and aerospace
verticals, and holds an undergraduate degree in
electronics and communication engineering from
DCE. He can be reached at
7piyushk@iimahd.ernet.in.
Anita Kishore is a second year PGPM student at IIM
Ahmedabad. She holds an undergraduate degree
in mechanical engineering from VJTI, Mumbai.
She can be reached at 7anitak@iimahd.ernet.in.
 Campus Thoughts

References

1. Louis Uchitelle, Nov 2008, If Detroit Falls,

Foreign Makers Could Be Buffer, The New York
Times.
http://www.nytimes.com/2008/11/17/business
/economy/17impact.html (Last accessed on
January 10, 2009)

2. Rod Lache, Mar-Dec 2008, US Auto Sales.

Deutsche Bank Global Markets Research

3. John Cloud, 2004. Why The SUV Is All The

Rage, Time,
http://www.time.com/time/magazine/article/
0,9171,1004283-6,00.html (Last accessed on
January 10, 2009)

4. Mark Phelan, Dec 2008, Myths about Big 3

persist, Knoxvillebiz.com,
http://www.knoxnews.com/news/2008/dec/21
/myths-about-big-3-persist/ (Last accessed on
January 10, 2009)

5. David Kiley, Dec 2009, Ten Things The

Taxpayer Should Know About The U.S. Auto
Industry Now That They Own It, Businessweek
http://www.businessweek.com/autos/autobeat
/archives/2008/12/ten_things_the.html?chan=t
op+news_top+news+index+-
+temp_news+%2B+analysis (Last accessed on
January 10, 2009)

6. John D. Mckinnon, Dec 2009, U.S. Throws

Lifeline to Detroit, WSJOnline,
http://online.wsj.com/article/SB122969367595
121563.html (Last accessed on January 10,
2009)

7. Pete Winn, Nov 2008, Union Workers at Big

Three Automakers Average $73 an Hour,
CNSNews,
http://www.cnsnews.com/public/content/articl
e.aspx?RsrcID=39499 (Last accessed on January
10, 2009)

8. Rod Lache, Dec 2008, U.S. Auto and Auto Parts:

U.S. Administration Grants Auto Bridge Loans.
Deutsche Bank Global Markets Research
9. Rod Lache, Mar-Dec 2008, US Auto Sales.
Deutsche Bank Global Markets Research.

AUDIRE - IIM ABC CONSULTING REVIEW 35

36

WHY THE SOLAR INDUSTRY
NEEDS OIL PRICES ABOVE $70/BARREL?
Abstract
The current vagaries in oil prices, and especially
with the prices falling below $70 per barrel make
the sustenance of the solar PV industry
questionable. Hope for the solar industry
currently comes from promised Government
subsidies in US, Germany, Spain and other
countries. An in-depth understanding of the solar
industry value chain indicates the causes for the
decreased substance due to the current oil prices.
The year 2009 has started off with oil prices
ranging at $30-50/barrel. The dramatic fall in oil
prices after July, coinciding with one of the
biggest world-wide recessions in recent times, has
major ramifications for the solar industry as well.
Campus Thoughts
In July, with oil prices reigning at $140/barrel, and
Goldman Sachs predicting $200/barrel by the end
of the year, the golden era of the solar industry
seemed to have started with the industry finally
shirking off the Government subsidy burden, and
becoming self-sustainable. However, with oil at
$40/barrel and the tight liquidity situation, the
markets cannot support the high capital-intensive
green-field solar power plants without the benefit
of deep Government subsidies.
The solar industry has been growing at a CAGR of
40-50% for the last five years. This growth was
largely on the back of lucrative German subsidies.
The Germans pioneered the concept of fixed
feed-in tariffs to attract solar installations, which
AUDIRE - IIM ABC CONSULTING REVIEW 37
 AUDIRE - IIM ABC CONSULTING REVIEW
has now begun to be emulated by most
Governments. Cheap labor costs in China allowed
the rapid commoditization of solar PV technology,
and by the end of 2008, China was an important
supplier of solar PV modules to Germany, Spain
and US, the biggest solar markets as of now. The
solar PV industry is truly multi-national invented
by the US, demanded by Europe and supplied by
China!
Solar energy not only increases energy-
independence of a country and minimizes
pollution but also creates new job opportunities
for its citizens. The Spanish and German
Governments have repeatedly used this as
another reason to justify the huge subsidy burden
for solar energies.
To understand the solar economics, it is important
to understand the five components of the solar
value chain polysilicon, wafer, cell, module and
assembly. The polysilicon is the basic raw material
and the biggest bottleneck for the industry.
Polysilicon shortage has resulted in its price rising
from $30/kg in 2002 to as much as $500/kg in 2008
in the spot market. This shortage has been driven
by the complexity of polysilicon production and
large ramp-up times for new polysilicon
fabrication plants. The huge gross margins in
polysilicon and the growing subsidy-driven
demand for solar installations have attracted a
number of players, both western and Chinese, and
2010 should see an additional influx of polysilicon
supply in the market. Bottomline, with polysilicon
prices stabilizing at $70-80/kg, solar PV energy
could be produced at $4.50/W by 2010, down from
the current $7/W.
Solar PV competes with peak power tariffs, i.e.,
electricity generated from oil-fired plants to
meet peak loads. With oil priced at $70/barrel and
electricity tariffs rising at 5-10% annually, solar
plants generating power at $4.50/W could
achieve grid parity by 2010. Solar grid parity
would have meant an exponential demand for the
38
cheap solar energy. The explosive demand for
solar PV would result in more economies of scale
and a downward cost spiral for solar energy,
leading to the industry becoming self-sufficient
and independent from Government subsidies.
With oil prices falling to $40/barrel, the solar
story does not seem to be as rosy as before. Add to
this the current liquidity crisis and expensive
credit, the solar industry starved of capital, could
die a premature death in these turbulent markets.
Hope for the solar industry comes from promised
Government subsidies. The upcoming Obama
administration in the USA has promised a number
of green initiatives in the form of subsidies and tax
incentives to sustain the solar industry. Sunny
California had already taken a lead in providing
feed-in-tariffs, apart from the federal tax credits
provided by the center. The German and Chinese
Governments have also allocated capital to green
initiatives as part of the bail-out packages
designed to revive the economy.
In conclusion, the current $40/barrel oil prices
are cancerous for the solar industry. While it
remains to be seen when and at what levels oil
prices will stabilize, Government intervention
through subsidies is the only way to protect the
nascent solar industry.
Author(s)
Sumant Bhutoria is a second year PGP student at
IIM Ahmadabad.

IMPLICATIONS OF RURAL ROAD DEVELOPMENT
ON ECONOMIC GROWTH OF INDIA
Abstract
Rural infrastructure plays a major role in India's
growth trajectory. In this article we focus on the
existing government policies and programmes,
the scope of private sector participation and the
benefits that can be achieved through this
private-public partnership. Also we look at a
comparison on how India is doing vis-à-vis China
in rural road development. A key highlight that
emerges in this article is the importance of
planning stage in the overall development
programme.
Importance Of Infrastructure
The main areas of improvement in rural
infrastructure consist of electricity, roads,
drinking water, telephone connectivity, irrigation
facilities and housing. In this article we look at the
challenges and opportunities that lie ahead in
rural road development.
Rural roads have influence on all aspects of rural
development that relies on good communication.
This includes trade, commerce, agriculture,
fisheries, small scale industries, health etc. It is a
provider of essential services as well as stimulator
of economic growth. The two major ways in which
it helps are
1. Creation of new markets: According to a
report, the rural per capita expenditure
grew by 11.5% while urban per capita
expenditure grew by 9.6% between June
2002 and December 2003. Currently 50-55%
of corporate India's sales come from rural
markets. 25% of urban India spends as much
as 75% of rural India indicating the huge
Campus Thoughts
potential that rural Indian market holds.
Connecting the rural areas to the rest of the
country through a network of roads is a
precondition for a sustained increase in the
rural expenditure.
2. Increased income levels and better
lifestyles: Creation of road infrastructure
leads to new employment opportunities
(there are more shops which provide goods,
there are drivers to ferry the goods to and
from the village, and so on). This leads to
higher income levels of rural population.
Further, more goods and services become
accessible to rural people which leads to a
better lifestyle. Studies have shown there is
a statistically significant correlation
between education and income levels with
improved connectivity of villages through all
weather roads.
It is important to plan the roads in a scientific way
that results in maximum connectivity. Currently
the focus is mostly on improving and upgrading of
existing planning approaches. The planning needs
to include parameters like socio-economic
conditions, transportation modes and costs and
not just the population of regions connected. It
should also be amenable to dynamic changes to
traffic scenarios. Currently out of the six lakh
Indian villages spread over 3.28 million sq Kms,
more than half are yet to be connected.
Existing Rural Road Infrastructure And
Its Limitations
India has the second largest road network in the
world of 3.314 million Kilometers. This network
accounts for 80% of passenger traffic and 65% of
AUDIRE - IIM ABC CONSULTING REVIEW 39
 AUDIRE - IIM ABC CONSULTING REVIEW

freight movement. The classification of the Indian road construction and 370,000 km of upgradation
Road network is shown in table 1. at the cost of $26 billion.5

Table 1: Indian Road Network2 The present status of progress as given in the
official website at the time of writing this article
Length % of
was as follows:
Class
(Km) Total
Table 3 : Govt. projects undertaken
National 66,754 2.01
Highways/Expressways
No. of Road Works Cleared 81082
State Highways 128,000 3.86
New Connectivity 56379
Major district roads 470,000 14.18

Rural & other roads 2,650,000 79.95 Upgradation 24700

Total (approx) 3,314,754 100 Completed Road Works 52378
Road Works in Progress 28369
while others get none.3 Total Length 308124.39 Km

In developed countries close to 100% connectivity Under the Bharat Nirman programme taken up for
has been achieved. Currently 60% of the villages in rural infrastructure development, the following
India are connected by all weather roads. The targets are set to be achieved within the period
constraint is limited funds and ad hoc approaches 2005-2009: 146185 Km road length construction
undertaken while planning the road network. by 2009 to benefit 66,802 unconnected
Rural Road works is executed by multiple agencies habitations in the country, also an upgradation of
in India resulting in lack of co-ordination. This 194132 km of the existing routes.
results in many villages getting several road
connections Table 4 : Cost and benefit analysis of roads in
India6:
A comparison between India and China:
Expense per Total (in Rs.
Table 2 Km (Rs. lakshs) 100 Crore) Utilisa
India China4 Yr New tion
Conn Upgra (%)
e- Expe
Length of Rural 2.65 2.9 dation Cost
ctivity nse
Roads (million Km)
00-01 8.57 10.74 24.23 31.39 77.21
Villages connected 60% 92%
01-02 10.52 16.07 47.30 52.97 89.29

Thus we see that although we have a larger 02-03 NDA NDA NDA NDA NDA
network in a smaller country, we have managed to 03-04 12.43 16.38 49.48 57.97 86.1
achieve a much lesser connectivity as compared 04-05 13.08 17.48 51.02 67.27 75.84
to China. This is on account of lack of proper
05-06 16.5 17.81 85.56 122.6 69.81
planning while developing road networks.
NDA = No Data Available
Government Programmes and Policies
The major government projects undertaken to In India 300-500 vehicles ply on a rural road every
improve the road network in the country is the day. The overall economic returns to road
Pradhan Mantri Gramin Sadak Yojana (PMGSY). development can be measured by summing over
Pradhan Mantri Gramin Sadak Yojana (PMGSY). the gains through transportation cost savings,
The scheme was launched in December 2000 as an higher output and lower input market prices, and
initiative to improve connectivity and reduce higher productivity. Benefits of this expenditure
poverty. The scheme proposes 368,000 km of new are primarily on two counts

40
 Campus Thoughts

1. Increased income levels coffers. Previously, the development,

2. Increased number of children attending maintenance and management of National
schools (20% and 35% higher enrolment in Highways were under the purview of Central
school villages with connectivity in Government as per National Highways Act of 1956.
Bangladesh and Bhutan respectively)7,8 This act was amended in June 1995 to allow
private participation.
Problems In Road Infrastructure
The private sector participation in this sector
Development
would rely on the capability of commercializing
We list the following major problems that need to these projects through user charges so that
be considered: recovery of investment is made possible. There
1. Land Acquisition has been considerable growth in this investment
over the past ten years. The investment areas are
2. Encroachment of roads by roadside dwellers
primarily in the National Highways, Expressways.
3. Objection to cutting of trees The more the private sector is involved in such
4. Corruption and delay in government projects, easier it becomes for the government to
procedures focus on rural road development. The demand is
5. Lack of private sector funding as follows:

6. Law and order problem 1. Widening of roadways from 1way to 2 ways

and from 2 ways to 4 ways
Ways To Move Forward
2. Strengthening of pavement
l Planning 3. Construction of bypasses
Table 5: Classification of rural roads in India 4. Construction of bridges
Usage Percentgage Table 6 : Private Investments
Education bound trips 42
Category of Indicative
Domestic 17 S.No. projects Quantum
Existing Network
Service 16
1 Widening from 4000 km
Business 16 2 lanes to 4
Major Bridges
2 50 No.
Railway Over
This suggests that the planning should be based on
3 Bridges
educational requirements. Also this is 50 No.
Elevated
corroborated by the findings that the age group 4
section (Urban To be
Areas) identified
11-15 is the single largest user segment of rural
To be
roads.” to “Studies on rural roads classification 5 Interchanges
identified
suggest that the planning should be based on
6 Bypasses 30 No.
educational requirements. Also this is New Network
corroborated by the findings that the age group 7 Expressways 1000 km.
11-15 is the single largest user segment of rural
roads." 100% tax concessions on profits are provided for
enterprises undertaking the projects during the
l Financing of projects
first five assessment years, and in the next five
Currently major spending in rural road years 30% of their profits are tax exempt. Also for
development is done from the government Investors and lenders, if 'm1' be the income from

AUDIRE - IIM ABC CONSULTING REVIEW 41

 AUDIRE - IIM ABC CONSULTING REVIEW
investment 'x' in an infrastructure company and
'm2' be the income from any other investment,
then the net taxable income is 0.6m1+m2-0.2x
The government has also expedited foreign
investments in this sector by allowing up to 74%
FDI for road and bridge constructions. Some of the
projects are as follows9
1. Delhi-Gurgaon (NH8)
2. Jaipur-Ajmer (NH8)
3. Bangalore-Nellore
4. Chilakaluripet (NH5)
5. Hosur-Krishnagiri
6. Chengelpet-Yellupuram (NH45)
lTechnological Advancements required
Rural Road planning should be carried out by
building a strong database that contains village
level information and road inventory details.
Information system plays a major role in
planning and development of rural areas.
Telecommunication, remote sensing and
computers would lend support to spatial planning
process. These can be used for optimal resource
allocation, monitoring and maintenance. Data
from village level would reach faster at the
official decision making level. The data should be
collected from grass root level organizations and
collated at the district and block level. For each
road the following type of information is to be
collected10
1. Road reference data
2. Road geometric details
3. Road pavement conditions
4. Terrain and soil type
Conclusion:
We find that there exists a huge amount of
untapped potential in the rural regions of the
country that can be efficiently utilized through
proper infrastructure planning and execution.
Roads, particularly those in the rural regions of
the country play a pivotal role. The government
has taken steps to encourage private participation in
42
this sector. The incentives and concessions offered to
corporates are a good way of encouraging private
participation, however equal effort needs to be put into
planning these networks to achieve maximum
connectivity. The progress can be accelerated only
through transparent and speedy implementation of the
projects.
Author(s)
Vivek Pandey is a 1st year PGP student at IIM Bangalore.
He holds a Bachelors degree in Computer Science and
Engineering from Indian Institute of Technology (IIT)
Kanpur, Masters Degree in Computer Science from
University of Illinois at Urbana-Chaampaign and can be
reached at vivekpa08@iimb.ernet.in.
Rajarshi Mukherjee is a 1st year PGP student at IIM
Bangalore. He holds a Bachelors degree in Electronics
and Telecommunication Engineering from Jadavpur
University and can be reached at
rajarshimu08@iimb.ernet.in.
References:
1. Warrier, Shobha, 2005, The Rediff Interview/R
V Rajan, managing director, Anugraha Madison,
http://www.rediff.com/money/2005/jun/02int
er.htm (Last Access date 12/09/2008)
2. Indian Road Network, 2009
http://en.wikipedia.org/wiki/Indian_Road_Net
work (Last Access date 12/09/2008)
3. Kumar, P, Jan, S S, 2000,” Optimal rural road
network planning for developing countries”
http://findarticles.com/p/articles/mi_qa3927/i
s_/ai_n8907186 (Last Access date 12/09/2008)
4. “China's rural road length reaches 2.9 million
Km”, 2005,
http://english.peopledaily.com.cn/200510/24/e
ng20051024_216365.html (Last Access date
12/09/2008)
5 Pradahan Mantri Gram Sadak Yojana Website
http://www.pmgsy.org/government/security/lo
gin/dologin.asp (Last Access date 12/09/2008)
6. Pradahan Mantri Gram Sadak Yojana Website
http://www.pmgsy.org/aspnet/Citizens/NAT/09
NPS/NCR.aspx?year=2000,2001,2002,2003,2004,
2005,2006 (Last Access date 12/09/2008)\
7. KhadndKer, R. S, Bakht Z, Koolwal,B G, “The
poverty Impact of rural roads: evidence from
Bangladesh” https://editorialexpress.com/cgi-
 Campus Thoughts

bin/conference/download.cgi?db_name=NEUDC
2006&paper_id=88 (Last Access date
12/09/2008)

8. http://www.transport-
links.org/transport_links/filearea/documentstor
e/322_Thampil%20Pankaj%20Paper%201.pdf
(Last Access date 12/09/2008)

9. AsiaTradeHub.com, “India's Transport

Infrastructure”
http://www.asiatradehub.com/India/roads.asp
(Last Access date 12/09/2008)

10. Prasada Rao, B. Kangadurai, P. K. Jain and Dr.

Neelam Jain,” Information system for rural
road network planning - a case study”,
http://www.gisdevelopment.net/application/ut
ility/transport/pdf/218.pdf, (Last Access date
12/09/2008)

AUDIRE - IIM ABC CONSULTING REVIEW 43

Source - Image: © Joe M500, Creative Commons Attribution, Flickr
 Campus Thoughts

CHEMICAL INDUSTRY
Abstract
The Chemical Industry is not well-known for its
sustainability initiatives. And that is one reason
among others cost reduction, regulatory
tightening, and newer technologies that are
forcing a change in the corporate mindset. The
article highlights the point with BASF as an
example. BASF is one company that has identified
sustainable development as a strategic
imperative, and has committed its organizational
resources to that end. The article discusses its
initiatives in some detail, and also analyzes their
impact on the 'triple bottomline'. In the end, the
business rationale behind such initiatives is
amply borne out.
Introduction
Sustainable development has been defined as the
pattern of carrying out business that seeks to
meet present human needs without compromising
the ability of future generations to meet theirs.
But it is no longer a question of just being good. As
John Doerr put it, climate change is “one of the
most pressing global challenges”. Increasingly,
both equity and debt-holders are beginning to
realize that future cash-flows are susceptible to
'climate risk' and are therefore discounting share
prices of companies lagging behind in climate
awareness. Raw material and energy costs are on
the rise as pressure rises on limited resources.
Also, improving awareness amongst consumers is
allowing them to make purchases keeping in mind
a company's environmental record. At the same
time, opportunities such as a vibrant market for
trading emission allowances are being presented.
Global Chemical Industry: The Thrust
towards Sustainability
The chemical industry is one of the most
important industries in the manufacturing sector,
which caters to virtually all sectors of an economy
and produces more than 80,000 products. Mindful

80 71.41
Milliion Tonnes of oil equt.

70
60
50
40
30
20
10 3.58 2.91 2.03
0.16
0
Oi
l s t at es rs
Ga ric a
Co
l he
ct He wab Ot
e
El n e
Re
Figure 1: Energy consumption in the EU (Source: European Chemical Industry Council,
http://www.cefic.org/factsandfigures/ (Last accessed on: Nov 30, 2008))

AUDIRE - IIM ABC CONSULTING REVIEW 45

 AUDIRE - IIM ABC CONSULTING REVIEW

74
Electronics 78
74
Food 77
% of position replies

Automobile 67
72

Pharmaceutical 66
70

Electricity 67
70
49
Chemical 48
39
Petrtol/Oil 45

Nuclear energy 37
35

0 10 20 30 40 50 60 70 80
2006 2004
8 industries
awerage: 58

Figure 2: Public Image of the EU chemical industry (Source: European Chemical Industry Council,
http://www.cefic.org/factsandfigures/ (Last accessed on: Nov 30, 2008))

of their chequered environmental record, various
players in the industry have identified
sustainability as a key component of their
strategy. The following factors have contributed
to sharpening the corporate focus:
Ensuring stable input and energy supplies: The
chemical industry is heavily dependent on oil and
gas both for its energy and input requirements.
Raw material costs range from 30% to 60% of the
sales, and are a key component of total costs. The
industry is keen to reduce its susceptibility to
variations in oil and gas prices, and to disruptions
in their supply.
Tightening regulations: The chemical industry
has been a subject of constant regulatory scrutiny
in the past. Regulations pertaining to worker
safety, waste disposal, gas emissions and
chemicals produced have imposed high costs on
the industry. And such regulations are expected to
increase in scope and power. For example, the
European Union has adopted a far reaching
regulation for Registration, Evaluation,
Authorization and Restriction of Chemical
substances (REACH) which requires registration of
chemicals and progressive substitution of the
most dangerous ones.

Public perception due to a chequered history: Availability of greener technologies: New

The chemical industry has been held liable for a
number of environmental disasters in the past
such as the DDT controversy, Minamata Bay and
Bhopal, among many others. As a result, public
perception about the industry is not very
favorable, and Not-in-my-back-yard (NIMBY)
agitations have made it more difficult for
companies gain access to community resources.
advances in disciplines such as organic, inorganic
and biochemistry are enabling the design of
better products and processes. Some examples
include:
l Usng byproducts as inputs: A new
process has been developed which
converts glycerol, a byproduct of the
bio-diesel industry into propylene
glycol for antifreeze use.

46
 Campus Thoughts

replacing CFC and other ozone-

200
depleting chemicals.
Index 1990 = 100

150 l Improving products: Archer Daniels

Midland plans to produce
100 biodegradable plastics that would
substitute petrochemical plastics.
50
Tremendous scope for improvement: The
experience regarding impact of environmental
0
initiatives till now in the chemical industry has
1990

1993

1996

1999

2002

2005
been promising, and further potential remains to
be tapped. For example, between 1990 and 2005,
GHG Emission Energy
Consumption while production in the EU chemical industry rose
Production
by 60%, total energy consumption remained stable
Figure 3: Emissions and energy usage in EU and greenhouse gas emissions fell by almost 30%.
(Source: European Chemical Industry Council,
http://www.cefic.org/factsandfigures/ Also, GHG emissions per unit of energy
(Last accessed on: Nov 30, 2008)) consumption have reduced by over 30% and GHG
emissions per unit of production have been
reduced by more than 50% from 1990 to 2005.
l Replacing key inputs: Using bioethanol
and other renewable biomass In the US, industry efforts towards ensuring safety
alternatives as feedstock to replace and environmental performance have been
crude oil. instrumental in reduction of industry emissions by
l Improving processes: Dow Chemical has 60% and reducing work related accidents by 31%
developed a 100% carbon dioxidie while increasing output by 30%.
blowing agent for polystyrene foam
BASF: A Snapshot
BASF is the largest chemical company in the world
with sales of € 58.0 billion in 2007 and employee
150
Index 1990 = 100

strength of around 95,000 spread over 200

countries. It caters to a wide variety of industries,
100 and in 2007, its sales were as shown:

(% of sales in 2007)
50
> 15 % Chemicals

10 - 15 % Automotive | Construction |
0 Utilities
1990

1993

1996

1999

2002

2005

5 - 10 % Agriculture | Plastics industry | Oil

industry

<5% Electrical/Electronics | Furniture |

GHG /Unit Energy Production Paper
consumption GHG /production
10 - 15 % Other industries

Figure 4: Greenhouse gas emissions in EU

(Source: European Chemical Industry Council, Table 1: BASF sales customer industry
http://www.cefic.org/factsandfigures/ (Source: BASF Annual Report 2007)
(Last accessed on: Nov 30, 2008))

AUDIRE - IIM ABC CONSULTING REVIEW 47

 AUDIRE - IIM ABC CONSULTING REVIEW

The following table describes in greater detail the resource conservation and renewable raw
products offered by each segment and its materials. All new product and process
contribution to BASF sales and profitability: investments have to pass the 'eco-efficiency
analysis' test to identify those that are the most
Business Examples of Sales EBIT 1% EBIT
Segment Products/Services 1% of of total Margin
environmentally sound and economically
total efficient. In the end, a risk matrix like the one
Chemicals Inorganics like glues 25.81% 25.48% 14.09%
Petrochemicals,
shown below is obtained, and the decision is made
intermediates for accordingly.
plastics
Plastics Performance Polymers 24.60% 16.95% 9.83% In addition, BASF has taken up a host of strategic
Polyurethanes like foams
initiatives which can be better understood in
Performance Acrylics & Dispersions
Products Health Care products
21.32% 10.75% 7.20% terms of its impact on each step of the value
like food supplements creation process as follows:
resins and pigments
fuel additives
Agricultural fertilizers, pesticides
Focus on Operations
9.09% 8.34% 13.09%
Products etc., With an objective of increasing energy efficiency
Oil & Gas Exploration,
production, trading 19.17% 38.49% 28.66% and effective waste management, BASF has
and transportation sought to incorporate the concept of Verbund
Table 2: Summary of business segments (German for integration and networking).
(Source: BASF Annual Report 2007)
l T h e Pr o d u c t i o n Ve r b u n d - S i n c e
In terms of geographical segments, Europe
manufacturing plants are linked, the
constitutes the largest market for BASF, and products and waste from one plant serve as
within Europe, Germany is the biggest consumer raw material for the next, conserving energy
market. However, in terms of growth, Asia- and resources.
Pacific, South America, Africa, and Middle East
l The Energy Verbund - By linking energy
have been the most promising markets with an
supplies, excess energy in the form of heat is
increase in revenues of over 18% compared to
immediately converted into steam and fed
2006.
into the BASF steam network and can be used
as an energy source in other production
Sustainability: A Pillar of BASF Strategy
plants.
BASF is the leading chemical company in the Dow
Jones Sustainability World Index (DJSI World) and l Power Generation - BASF is increasingly using
was recognized for its climate strategy, its good (for 75% of its requirements) combined heat
environmental and social reporting standards and and power (CHP) plants to generate both heat
and steam which has an overall fuel
for developing innovative and eco-efficient
efficiency of almost 90 percent.
products. The BASF corporate website lists the
four pillars of its strategy as follows: Focus on Customers
l Earn a premium on cost of capital l Developing energy-efficient products BASF's
l Form the best team in the industry research efforts are reflected in products
l Help customers to be more successful such as Neopor® foam which helps
l Ensure sustainable development manufacturers save up to 50% of raw
materials. BASF also offers plastics that make
It spends around €400 million, or one-third of its
vehicles lighter, and additives that improve
total research and development budget, in the
fuel consumption.
areas of energy efficiency, climate protection,

48

Figure 5: Decision matrix for eco-efficiency analysis (Source: Kicherer, Andreas , “Optimization of products and the product
portfolio”, http://www.rsd.cam.ac.uk/documents/local/events/downloads/gf/Andreas_Kicherer.pdf, (Last accessed on:
Nov 30, 2008))
l Providing consulting services - BASF has a
consultancy program as part of its 'Success'
sustainability program to help other
manufacturers quickly learn how to work with
REACH.
l Consumer Education - BASF published a
carbon balance in 2008, and was the first
company in industry to do so. This balance
contrasts the CO2 emission-savings that are
achieved with BASF products and procedures
with the emissions from raw material
extraction, production and product disposal.
Focus on partners
l Educational Institutions SEPA (China) and
BASF have signed an agreement to broaden
strategic cooperation on clean fuels. In
another recent move, BASF has formed a
partnership with Columbia University to
research sustainable energy sources.
l Suppliers - BASF provides suppliers who do
Campus Thoughts
not have adequate standards with its
expertise. Once suppliers meet their
requirements, they include their raw
materials in purchases.
l Building Coalitions BASF is playing an
important stewardship role in garnering
support for sustainable development. It is
the founding member of the Global Compact
and the World Business Council for
Sustainable Development and also promoted
the Responsible Care Global Charter.
Focus on employees and society
l Employee Safety and Welfare BASF
emphasizes constant training for bigger and
better jobs, and to reinforce the use of safe
procedures.
l Community Development - The BASF Group
spent a total of €67.2 million on community-
based, social, educational, scientific,
sports, artistic and cultural projects in 2006.
AUDIRE - IIM ABC CONSULTING REVIEW 49
 AUDIRE - IIM ABC CONSULTING REVIEW
Reputation
Keeping
Evading
Litigation Profit Step with
Regulation
Buyer
Willing to
Pay
Figure 6: Motivations for sustainability initiatives
Motivation for Initiatives
Like any business, BASF's sustainability initiatives
are grounded in the principles of risk minimization
and value maximization. Its motivations can be
understood in terms of the following diagram:
Reputation - BASF is known as a reliable and
competent partner due to its commitment to
sustainability and that reputation builds trust
among the people, its customers and their
governments. It puts BASF in a position of being
Figure 7: Production and energy consumption at BASF
(Source: BASF, “Conserving resources”,
http://www.basf.com/group/corporate/en/content/
investor-relations/basf-in-brief/verbund/conserving-resources,
(Last accessed on: Nov 30, 2008))
50
the preferred supplier and also the preferred
employer.
Reducing Regulatory Risk - It has paid for BASF
to be in ahead of the regulatory requirements
such as REACH, both to reduce earnings surprises
and to be able to pursue commercial
opportunities in helping others companies cope
with the regulations.
Buyer Willingness to Pay - Many consumers
realize that the total cost of ownership is
significantly reduced by using efficient products,
and allows BASF to charge consumers a higher
price for its environment-friendly products.
Evading Litigation - BASF was exposed to
worker boycott and litigation in Louisiana in 1984
on the basis of environmental issues and work
conditions, and had to pay significant damages
and incur loss of production. To prevent a
recurrence, it is prudent for BASF to focus on
sustainability.
Profits - All the above factors contribute to the
primary objective of BASF as a business, i.e.
profit-making. And in turn, the monetary payout
supports the ongoing success of its sustainability
initiatives.
Impact of Initiatives
The impact of the above mentioned initiatives are
best viewed in terms of the 'PPP Paradigm' which
stands for people, planet and profits, or the 'triple
bottomline' as others would say.
Environmental Impact
BASF has succeeded in breaking the link between
production output and the use of energy derived
from fossil fuels. As the graph below shows, while
production has risen by approximately 59 percent,
the use of fossil energy sources for electrical
power and steam generation has fallen by
approximately 44 percent since the 1970s. In the
period from 1990 to 2002, BASF reduced emissions
of greenhouse gases by 38% in absolute terms.
l BASF products have also led to an indirect
impact through its customers. For example,
using BASF technology, PetroChina hopes to
reduce its emissions of laughing gas by more

Table 3: Key financial trends for BASF (Source: Bloomberg)
than 10 million metric tons of CO2
equivalents. In addition, products such as
Neopor® which is an advanced insulating
foam, reduce the heating costs as well as the
associated emissions.
Societal Impact
BASF efforts have also contributed to employment
generation and improving education.
l Employment - BASF trained a total of 3,135
young people in Germany in 2006. In the same
year, 878 young people were taken on as
trainees at BASF.
In Africa, the support of BASF's social fund for the
Lapdesk project has improved education for about
100,000 schoolchildren.
Financial Impact
Many a times, sustainability initiatives are hard to
relate to core financial performance. However, in
the case of BASF, there has been a tangible link to
improved financial performance, highlighting the
significance of such steps.
l Cost Reductions - Verbund pay-off - BASF has
achieved total annual cost savings of
approximately EUR 800 million by integrating
plants and processes. The company has
reduced on-site accidents at Anderson by 61
percent and corresponding expenses due to
employee training programs emphasizing
safety.
l Revenues and Profit Margins - New products
like the Eco-efficiency analysis tool have
created an additional annual turnover on
BASF chemical products of around € 3-4 mn.
Coupled with the cost savings outlined above,
Campus Thoughts
the profit margins have improved over time
as shown. While many other factors have
contributed towards the improvement,
environmental measures have duly played
their part.
Conclusion
BASF has clearly identified 'climate change' as an
opportunity to innovate. This innovation is manifested
in terms of better processes and newer products. It is
supported by a strong corporate focus, and resource
dedication. And what is more, it has made tangible
financial and environmental progress in sync. With
stakeholder focus on environment certain to become
sharper, 'green' is a colour that would increasingly
define corporate strategy.
Author(s)
Akash Gupta is a 2nd year PGP student at IIM Bangalore.
He holds a Bachelors degree in Electronics Engineering
from Indian Institute of Technology (IIT) Roorkee and
can be reached at akashg07@iimb.ernet.in
References
1. Lash, Jonathan, and Willington, Fred, 2007,
“Competitive Advantage on a Warming
Planet”, Harvard Business Review, Mar, pp 2-11
2. The Indian Chemical Industry, KPMG, 2003,
pp 6
3. The Indian Chemical Industry, KPMG, 2003,
pp 8
4. “What is REACH?”,
http://ec.europa.eu/environment/chemicals/re
ach/reach_intro.htm (Last accessed on: Nov
30, 2008)
5. Spear, Mike, “Chemical industry sees green”,
http://www.chemicalprocessing.com/articles/2
AUDIRE - IIM ABC CONSULTING REVIEW 51
 AUDIRE - IIM ABC CONSULTING REVIEW

007/003.html?page=1 (Last accessed on: tent/sustainability/press-releases/regions/asia-

Nov 30, 2008) pacific-area-africa/worldwide-strategy-guided
(Last accessed on: Nov 30, 2008)
6. Wikipedia, “Green chemistry”,
http://en.wikipedia.org/wiki/Green_chemistry 15. BASF Corporate Website, “Greenhouse gas
(Last accessed on: Nov 30, 2008) emissions”,
http://berichte.basf.de/en/daten/umwelt/trei
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bhausgase/?id=V00-O*bGsDHotbir16* (Last
pp 9
accessed on: Nov 30, 2008)
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World”, September 2008, http://www.hrs-
with BASF's Know-how”,
group.net/news/en/2008/09/08/basf-leading-
http://www.basf.com/group/corporate/en/con
chemical-company-in-djsi-world.aspx (Last
tent/sustainability/press-
accessed on: Nov 30,
releases/newsletter/archive/march-2007 (Last
2008)
accessed on: Nov 30, 2008)
8. BASF Corporate Website, “What can we do for
17. BASF Corporate Website, “Developing Together
climate protection?”,
as Good Neighbors”,
http://www.basf.com/group/corporate/en/con
http://www.basf.com/group/corporate/en/con
tent/about-basf/solutions-for-global-
tent/sustainability/society/good-neighbors
challenges/climate-protection (Last accessed
(Last accessed on: Nov 30, 2008)
on: Nov 30, 2008)
18. BASF Corporate Website, “Economic
9. BASF Corporate Website, “Conserving
advantages”,
resources”,
http://www.basf.com/group/corporate/en/con
http://www.basf.com/group/corporate/en/con
tent/investor-relations/basf-in-
tent/investor-relations/basf-in-
brief/verbund/economic-advantages (Last
brief/verbund/conserving-resources (Last
accessed on: Nov 30, 2008)
accessed on: Nov 30, 2008)
19. “Industry Leader BASF Shares Innovative
10. BASF Corporate Website, “Neopor®”,
Models For Environmental Protection, Safety,
http://www.basf.com/group/corporate/en_GB/
and Health”, Aug 2001,
content/innovations/innovation-
http://www.allbusiness.com/environment-
award/2001/neopor (Last accessed on: Nov 30,
natural-resources/pollution-
2008)
monitoring/6113104-1.html (Last accessed on:
11. BASF Corporate Website, “Carbon balance”, Nov 30, 2008)
http://www.basf.com/group/corporate/en/con
20. Examples of eco efficient innovations,
tent/sustainability/environment/climate-
protection/carbon-balance (Last accessed on: PricewaterhouseCoopers, May, 2004, pp 15
Nov 30, 2008)
12. BASF SE Company Profile, Datamonitor, Aug,
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13. BASF Corporate Website, “Social
Responsibility”,
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V00-phvakDHoibir.- (Last accessed on: Nov 30,
2008)
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http://www.basf.com/group/corporate/en/con

52
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