CASE I WHAT LIES IN STORE FOR THE RETAILING INDUSTRY IN INDIA?

? India is not known as the nation of shopkeepers yet it has as many as 5 million retail outlets of all shapes and sizes. Some other optimistic estimates place the number at as high as 12 million. Whatever be the number, India can claim to have the highest number of retail outlets per capita in the world. But almost all of these are small outfits occupying an average of 500 square feet in size, managed by family members, having negligible investment in land and assets, paying little or no tax and known as the kirana dukaan (mom and pop stores in the U.S. or the corner grocery stores in the U.K.). These outlets offer mainly food items and groceries the staple of retailing in India. Customer contact is personal and one-on-one, often running through generations. There are a limited number of items offered often sold on credit-the payment to be collected at the end of the month. The quality of items is standard, with moderate pricing. There is great hype about the growth and prospects of organized retailing industry in India. It must be noted, however, that organized, retailing constitutes barely 2 per cent of the total retailing industry in India, the rest 98 per cent being under the control of the unorganized, informal sector of kirana dukaans. Market research agencies and consultants come up with encouraging forecasts about this segment of the retailing industry. For instance, A.T. Kearneys Global Retail Development Index ranks 30 emerging countries on a 100- point scale. Its 2007-ranking places India at number one for the third consecutive year, with 92 points, followed by Russia and China. The size of the organized retailing industry is estimated at US $8 billion and projected to grow at a compound annual growth rate of 40 per cent to US $22 billion by 2010. Overall, the Indian retailing industry is expected to grow from the current US $350 billion to US $427 billion by 2010 and US $635 billion by 2015. The economic environment in the post-liberalization period after 1991 has created several factors that have made this high growth of the organized retailing industry possible. Indias impressive economic growth rate of 9 per cent is the prime driver of increasing disposable incomes in the hands of the consumer. The growing size of the consuming class in India, in tandem with the entry and expansion of the organized sector players in recent years, has set the pace for corporate investment in retail business. Practically, every major Indian business group is looking for opportunities in the growing retailing industry. Among them are the big names in the Indian corporate sector such as the AV Birla group, Bharti, Godrej, ITC group, Mahindras, Reliance, Tatas and the Wadia group. The international environment presently is replete with examples of the fast-paced growth of the retailing industry in many developing countries around the world. In the post-liberalization period, there is more openness and awareness of the international developments among Indians. The ease of travel abroad and the exposure through television and internet have increased the awareness of the urban Indian consumer to the convenience of modern shopping. The modern retail formats thus have gained acceptance in India. Carrefour, Tesco and Wal-Mart are the international players already operating in India, with several others like Euroset, Supervalue and Starbucks having plans to enter soon. These international companies bring to India the latest developments in the retailing industry and help to set up a benchmark for the domestic players. The market environment is one of the most significant in terms of the growth and prospects of the retailing industry in India. In terms of geography, the reach of the organized retailing industry has been growing. In addition to the mega-cities of Mumbai and Delhi, cities such as Bangalore, Pune, Hyderabad, Kolkata and Chennai are also witnessing a boom in organized retail activity. Retailers are now trying to focus on smaller cities such as Nagpur, Indore, Chandigarh, Lucknow or Cochin. There are interesting possibilities regarding the retail formats. Traditionally, street carts, pavement shops, kirana stores, public distribution systems, kiosks, weekly markets and such other formats unique to India, have been in existence for a long time. At present, most organized retail formats are imitations of those used abroad. These include hyper and supermarkets, convenience stores, department stores and specialty chains. Among these formats, a notable trend has been the development of integrated retail-cum-entertainment centers and malls as opposed to stand-alone developments. Besides these, there are some attempts at indigenous formats aimed at the rural markets such as those by ITCs Choupalsagar DSCLs Hairyali Kisaan Bazaarand Godrej groups Godrej Aadhar. Pricing is an

important issue in the retailing industry. Generally, the bulk buying yields lower costs of procurement for the big retailers-a part of which they pass on to the customer in the form of lower prices. In food retailing, for instance, there is a clear trend of low prices being the determining factor in purchase decisions by the cost-conscious Indian consumer. But, lower prices may not be a major issue with the higher-income groups that may place greater emphasis on the quality of products and retail service, store ambience and convenience of shopping. For the majority of Indian consumers however, price is likely to remain a significantly important issue in the purchase decision. Competition has already accelerated with many Indian business groups having entered or likely to enter this booming industry. The political environment in India is ambiguous in terms of its support to the organized retailing industry. This is obvious as the unorganized sector employs nearly 8 per cent of the Indian population and is widely spread geographically. The overwhelming presence in terms of 98 per cent of the total retailing industry also is a significant political issue. In a democracy, the politics of numbers makes it imperative for the political class to adopt an ambiguous stand. In some cases, politicians have acted in favor of the unorganized sector by disallowing the setting up of large retail outlets in some states. Overall, however, there is ambiguity as there are several environmental trends in favor of the development of the organized retailing industry. In the regulatory environment, there has been a gradual easing of the restrictions albeit at a slow pace, in view of the ambiguous political stance as indicated above. Interestingly, the retailing industry is still not recognized as an industry in India. Foreign direct investment of up to 100 per cent is not permitted though it is possible for foreign players to enter through the routes of franchise agreements, cash-andcarry wholesale trading and strategic licensing agreements. Another problem area is of the real estate laws at the level of state governments that are yet to be clear on the issue of allowing large stores. Restructuring of the tax structure for the retailing industry is another regulatory issue requiring governmental action. However, tariffs on imported consumer items have been gradually aligned to meet the prescribed WTO norms and reduction of import restrictions are likely to help the growing organized retailing industry. The socio-cultural environment offers many interesting insights into the changing tastes and preferences of the urban and semi-urban Indian consumer. There is a large rural market consisting of nearly 720 million consumers, spread over more than 600,000 villages. Indias consumers are young: 70 percent of the countrys citizens are below the age of 36 and half of those are under 18 years of age. These people have deep roofs in the local culture and traditions, yet are eager to get connected with and know the outside world. According to a DSP Merrill Lynch report, the key factor providing a thrust to the retail boom in India is the changing age profile of spenders. A group of seven million young Indians in their mid-twenties, earning over US$ 5000 per year, is emerging every year. This group constitutes people who are enthusiastic spenders and like to visit the new format retail outlets for the convenience and time-saving they offer. Malls are also being perceived as not just places for shopping, but for spending leisure time and as meeting places. There has been an emergence of a combination of the retail outlet and entertainment centers having multiplexes, with rood courts and video game parlors. But there are some pitfalls too. For instance, organized retailing in India has had to deal with the misconception among middle-class consumers that the modern retail formats being air conditioned, sophisticated places are bound to be more expensive. The supplier environment probably offers the biggest constraint on the growth of the retailing industry in India. Reaching Indias consumers cost effectively is a distribution nightmare, owing to the sheer geographical size of the country and the presence of traditional, fragmented distribution and retailing networks and erratic logistics. For instance, the apparel segment that is one of the two top segments, the other being food, have had to invest in back-end processes to support supply chains. Supply chain management and merchandising practices are increasingly converging and apparel retailers are establishing collaborations with their vendors. Another area of concern is the severe shortage of skills in retailing. Human resource development for the retailing industry has picked up lately but may take time to fill the gap caused due to the shortage of personnel.

The technological environment for the organized retailing industry straddles many areas such as IT support to supply chain management, logistics, transportation and store operations. Some global retailers have demonstrated that an innovative use of technology can provide a substantial strategic advantage. The large number of store items, the diversity of sourcing and the gigantic effort required to coordinate actions in a large retail context is ideal for using IT as a support function. For instance, an innovative use of IT can help in a wide variety of functions such as quick information processing and timely decision-making, reduction in processing costs, real-time monitoring and control of operations, security of transactions and operations integration. The availability of supply chain management, customer relationship management and merchandising software can help much while performing activities such as ordering and tracking inventory items, warehousing, transportation and customer profiling. Overall, the Indian scenario offers an interesting mix of possibilities and challenges. A successful model of large-scale retailing appropriate for the Indian context is yet to emerge. The modern retail formats accepted globally are in the process of implementation and their acceptability is yet to be established. Questions 1. Identify the opportunities and threats that the retailing industry in India offers to local and foreign companies. 2. Prepare an ETOP for a company interested in entering the retailing industry in India.

CASE - II HELPAGE INDIA* The developments in medical sciences-the lowering of mortality rates and the increase in life expectancy-have ironically led to a situation where there are increasingly, a larger number of aged people in the society. The situation in most countries of the world is that the number of ageing people is increasing. India too, like other developing countries, experiences a rapid ageing of the population, with an estimated 80 million aged people. Almost eight out of ten of these aged people live in rural areas. The challenges that the elderly people in society face are many. For instance, a report in the Indian context indicates the following challenges: o 90% of senior citizens receive no social security or medical care. o 73% of senior citizens are illiterate and can only earn a livelihood through physical labour, which is possible only it they are healthy in their old age. o 80% of senior citizens live in rural areas with inadequate or inaccessible medical facilities; many are unable to access the medical facilities because of reduced mobility in the old age. o 55% of women over the age of 60 are widows with no means of support. The elderly people, or senior citizens, are the fastest growing segment of the Indian society. By 2025, the population of the elderly is expected to reach 177 million. Unlike many developed countries, India does not have an effective security net for the elderly people. There have been sporadic attempts by governments at the central and state levels to pay old-age pensions, but like most government schemes, there is a lot of leakage of funds and inefficiency. There is also a lack of post-retirement avenues for re-employment. Socio-economic developments such as urbanization, modernization, and globalization have impacted the economic structure and led to an erosion of societal values and the weakening of social institutions such as the joint family. The changing mores of society have created chasm between generations. The intergenerational differences have created a situation where the younger people are involved in education, career building and establishing themselves in life, ending up ignoring the needs of the elderly among them. The older generation is caught between a society which cares little for them and the absence of social security, leading them to a situation where they are left to fend for themselves. It is in this context that institutions such as HelpAge India play a positive role in society. HelpAge India, established in 1978, is a secular, not-for-profit, non-governmental organisation, registered under the Societies Registration Act of 1860. Its mission is stated as: 'to work for the cause and care of the disadvantaged older persons and to improve their quality of life'. The three core values that guide HelpAge India's work are rights, relief and resources. HelpAge India is one of the foundermembers of HelpAge International, a body of 51 nations representing the cause of the elderly at the United Nations. It is also a member of the International Federation on Ageing. The organisation of HelpAge India consists of a head office at New Delhi, with four regional and thirty three area offices situated all over India. The governing body of the organisation consists of ten distinguished people from different walks of life. Besides the governing body, there are three committees: the operations committee, the business development committee, and the audit committee. The CEO, Mr Mathew Cherian oversees the planning and implementation of policies and programs, with the support of five directors. The regional directors are responsible for their own regions. The program division at the head office chooses the partner agencies to provide the services to the elderly people. HelpAge India raises resources to perform three types of functions: o Advocacy about policies for the elderly persons with the national and local governments o Creating awareness in society about the concerns of the aged and promote better understanding of ageing issues o Help the elderly persons become aware of their own rights so that they get their due and are able to play an active role in society The major programs undertaken by HelpAge India include mobile medicare units, ophthalmic care for performing cataract surgeries. Adopt-a-Gran support to old-age homes, day care centers, income

generation and disaster relief. The business model of HelpAge India is based on revenue generation through grants and donations from international and national sources. Nearly half of the donations come from international donors. About a fifth of the donors are individuals. The sources of contributions come from fundraising activities that include direct mail, school fundraising, corporate fundraising, sale of greeting cards, acting as corporate agent for insurance, organizing events and establishing a shop-for-a-cause that sells gifts made by disadvantaged people. A review report on the activities of HelpAge India enumerates its strong points as below: Wide Reach and impact- HelpAge India has been able to impact the lives of a large number of elderly people and their families by adopting a holistic approach that provides immediate relief as well as long term sustainable improvement. Effective Partnerships in Development- HelpAge India has evolved as a development support agency through creating partner agencies, that is funded to implement the projects. High Degree of Charitable Commitment- Typically non-profit organizations spend a lot on overhead and administrative costs. But HelpAge India is able to put nearly eighty-five per cent of the funds towards actual project implementation. Focus on Efficiency and Transparency- The partner agencies are chosen carefully and monitored thoroughly. This results in increased efficiency and low overheads. Project implementation through partnerships increases efficiency and cuts down on overhead costs. Quality of Management- The management quality of HelpAge India is good and there are a lot of committed people. New employees are also trained to be sensitive to the mission of the organisation. With a wide spread of activities and being a non-governmental organisation having limited funding, HelpAge India has adopted modern means of information technology and networking. Most of the HelpAge executives work in the field and have no direct access to the office network. They have to use e-mail in order to maintain contact with their regional or area offices. They use cyber-cafes or handheld devices for sending and receiving e-mails. HelpAge has installed a secure connection at an initial cost of Bs. 4 lakh and annual upgradation cost of Rs. 75,000 to access e-mail from anywhere, with a high level of security and projection of data and contents. The nature of non-profit organizations demands certain requirements. Among these, transparency of operations and funds management is a major one. There are many NGOs that are accused or suspected of misappropriating funds for personal benefit. HelpAge India is conscious of this fact and gives high priority to information disclosure. The audited financial statements and the annual report are available on its website. The financial statements give a detailed account of the expenditure on individual projects. The expenses on travel and salaries of its employees and CEO are also mentioned. The individual donors are provided information regarding the use of the funds donated by them. The functional approach at HelpAge India consists of developing projects based on the assessment of the needs of its target community rather than on implementing them directly. The implementation takes place through the partner agencies. Rather than outright grants, it supports income generation projects for the elderly people; the success of implementation critically depends on the identification and appointment of partner agencies. The officers of HelpAge India physically inspect the proposed agencies and check on their management to ensure that they are not family-run set-ups established for personal gains. HelpAge India works presently, with nearly 400 partner agencies. These include, for instance, about 150 charitable eye hospitals that act as partner agencies for the ophthalmic care programme. HelpAge India with its slogan of fighting isolation, poverty and neglect' moves on its mission of providing 'equal rights, dignity for elders'. It foresees its future activities in the area of rights based advocacy for a better life for the elderly people by bringing them into the mainstream of-society rather than being marginalized to the fringes. Questions 1. In your opinion, what is the distinctive competence of HelpAge India? 2. Prepare a strategic advantage profile for HelpAge India.

CASE - III KMART AND SEARS: STILL STUCK IN THE MIDDLE? On January 22, 20A2, Kmart Corporation became the largest retailer in U.S. history to seek bankruptcy protection. In Kmart's petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code, Kmart management announced that they would outline a plan for repaying Kmart's creditors, reducing its size, and restructuring its business so that it could leave court protection as a viable competitor in discount mass-market retailing. Emerging from bankruptcy in May 2003, Kmart still lacked a business strategy to succeed in an extremely competitive marketplace. The U.S. discount department store industry had reached maturity by 2004 and Kmart no longer possessed a clearly-defined position within that industry. Its primary competitors were Wal-Mart, Sears, Target, Kohl's, and J.C. Penney, with secondary competitors in certain categories. Wal-Mart, an extremely efficient retailer, was known for consistently having the lowest costs (reflected in low prices) and the highest sales in the industry. Having started in rural America, Wal-Mart was now actively growing internationally. Sears, with the second-highest annual sales, had a strong position in hard goods, such as home appliances and tools. Around 40% of all major home appliance sales continued to be controlled by Sears. Nevertheless, Sears was struggling with slumping sales as customers turned from Sears mall stores to stand-alone, big-box retailers, such as Lowe's and Horne Depot, to buy their hard goods. Target, third in sales but second in profits, behind Wal-Mart, had distinguished itself as a merchandiser of stylish upscale products. Along with Wal-Mart, Target had flourished to such an extent that Dayton-Hudson, its parent company" had changed its corporate name to Target. Kohl's, a relatively new entrant to the industry, operated 420 family-oriented stores In 32 states. J.C" Penney operated more than 1,000 stores in all 50 states. Both Kohl's and J.C. Penney emphasized soft goods, such as clothing and related items. Kmart was also challenged by "category killers" that competed in only one or a few industry categories, but in greater depth within any category than could any department store. Some of these were Toys "R" Us, Home Depot, Lowe's, and drug stores such as Rite Aid, CVS, Eckerd, and Walgreens. Kmart had been established in 1962 by its parent company S.S. Kresge as a discount department store offering the most variety of goods at the lowest prices. Unlike Sears, the company chose not to locate in large shopping malls but to establish its discount stores in highly visible comer locations. During the 1960s, '70s, and '80s, Kmart prospered. By 1990, however, when Wal-Mart first surpassed Kmart in annual sales, Kmart's stores had become dated and lost their appeal. Other well-known discount stores, such as Korvette's, Grant's, Woolco, Ames, Bradlees, and Montgomery Ward, had gone out of business as the industry had consolidated and reached maturity" Attempting to avoid this fate, Kmart management updated and enlarged the stores, added name brands, and hired Martha Stewart as its lifestyle consultant. None of these changes improved Kmart's financial situation. By the time it declared bankruptcy, it had lost money in five of the past 10 years. Out of bankruptcy, Kmart became profitable-primarily by closing or selling (to Sears and Home Depot around 600 of its retail stores. Management had been unable to invigorate sales in its stores. Declared guilty of insider trading, Martha Stewart went to prison just before the 2004 Christmas season. In a surprise move, Edward Lampert, Kmart's Chairman of the Board and a controlling shareholder of Kmart, initiated the acquisition of Sears by Kmart for $11 billion in November 2004. The new company was to be called Sears Holdings Corporation. Even though management predicted that the combined company's costs could be reduced by $500 million annually within three years through supplier and administrative economies, analysts wondered how these two struggling firms could ever be successful. By the end of 2007, the stock of Sears Holdings had fallen to 111 from its peak of 195 earlier in the year. Like many retailers, both Sears and Kmart struggled to attract shoppers in an overcrowded industry and a slumping economy. Sears Holdings did, however, have $1.5 billion in cash, a significant advantage during lean times, and more than its rivals J.C. Penney, Kohl's, and Macy's combined. The company's debt load was only 25% of the total capital on its balance sheet, compared to 46% for Penney's and 53% for Macy's. It also had significant real estate assets on its balance sheet. For

example, Sears owned outright 518 of its 816 locations and many of the Kmart stores were located n strip malls close to large cities. Since fewer shopping malls were now being built, it was becoming harder to find space for "big-box" retailers in metropolitan areas. The most recent quarterly results for 2007 of Sears Holdings reported the third straight quarter of deteriorating profit margins and same-store sales. After months of cutting the number of employees and reducing other expenses, industry analysts felt that there was little left to cut. They were also concerned that management had tailed to invest in store improvements. Sears Holdings had just launched a bid in November 2007 to purchase Restoration Hardware, a home-goods retailer. Even though Restoration Hardware was also facing sluggish sales, it was thought that Sears' management could use the acquisition to create an upscale boutique within its stores. Questions: 1. List the primary mass merchandising retailing competitors of SEARS and KMART. 2. List the corporate and competitive strategies of SEARS and KMART. 3. Comment upon and analyze the strengths and weaknesses of SEARS and KMART. Can any of these strengths be counted as the core competencies of these firms? 4. Does combining the two companies mitigate the weaknesses or bolster the strengths mentioned above? 5. List the strengths and weaknesses of the combined SEARS HOLDINGS.

CASE - IV EXERCISING STRATEGIC AND OPERATIONAL CONTROLS AT iGATE GLOBAL SOLUTIONS The Bangalore-based iGATE Global Solutions is the flagship company of iGATE Corporation, a NASDAQ-listed, US-based corporation. Known earlier as Mascot Systems, it was set up in India in 1993, to offer IT staffing services. IT acquired business process outsourcing (BPO) and contact centre businesses in 2003, making it an end-to-end IT and ITES service provider. Its service portfolio includes consulting, IT services, data analytics, enterprise systems, BPO/BSP, contact centre and infrastructure management services. |GATE has over 100 active clients and centers based in Canada, China, Malaysia, India, the UK and the US. Chairman, Ashok Trivedi and CEO Phaneesh Murthy, an ex Infosys IT professional and their partners hold a major stake, with some participation by institutional and public investors. The revenues for 2006-20A7 are over Rs. 805 crore and net profits Rs.49.6 crore. The corporate strategies of iGATE are offering integrated IT services and divesting the legacy IT staffing business and possibly making acquisitions in the domain expertise for financial services businesses. The business strategy is focused differentiation based on the focal points of testing, infrastructure management and enterprise solutions. The competitive tactic is avoiding head-on competition with the formidable larger players in the industry by carving out a niche. The business definition is serving large customers and staying away from sub-contracting work. iGATE adopts a differentiation business model based on an integrated technology and operations model which it calls as the iTOPS model. This is advancement over the prevalent model in the ITES industry based on low-cost arbitrage model. iTOPS is based on transaction-based pricing for services and supporting the clients by providing the platform, processes and services. The strategic evaluation and control has both the elements of strategic as well as operational controls. The functional and operational implementation is aimed at achieving four sets of objectives: (a) Shifting from small customers to large customer (Fortune 1000 companies) (b) Shifting away from stocking to project-consulting assignments (c) Working directly with clients rather than with system integrators (d) Moving from a local to international markets Some illustrations of the performance indicators that reflect these objectives are: 1. On-shore versus off-shore mix of business revenues: in 2004, this ratio was 55:45 and in 2007, it has improved to 27:73, indicating a much higher revenue generation from off-shore business. 2. Billing rates: Revenue charged from clients on assignments. With project consulting assignments from off-shore clients, where the revenues are typically higher, with lower costs and higher productivity in India, the realizations from billing have to be higher. The industry norms for ITES are USg18-28 per hour for off-shore and US$ 55-65 per hour for on-shore assignments. 3. The number of large clients from Fortune 1000 companies: Presently, iGATE has nearly half of its more than 100 clients from Fortune '1000 companies, of which the top 10 account for 70 per cent of its business. 4. Controlling employee costs: This is an area where concerted effort is required from the HR and finance functions. Hiring less experienced employees lowers the compensation bill. In the IT and ITES industry, attracting and retaining well-qualified and experienced employees is a critical success factor. The performance indicator for this objective is the cost per employee. 5. Human resource metrics such as the hiring and attrition rates: In the IT and ITES industry, the human resource metrics such as hiring and attrition rates are critical indicators. Increasing the number of employees and lowering the attrition rate by retaining the employees is a big challenge. There are presently about 5800 employees, likely to go up to 8500 in the next two years. The attrition of 20 per cent presently at IGATE is on the higher side. But such attrition is common in the industry where employee mobility is high and employee pinching a widespread trend.

The human resource management functions being critical in an industry where so many challenges exist, needs a strong emphasis on training and development, motivation, autonomy and attractive incentives. iGATE has an integrated people management model focusing on developing technical, behavioural and leadership competencies. The three metrics by which the HR function is assessed are: human capital index, work culture and employee affective commitment. The reward system at iGATE consists of meritorious employees across all levels being granted restricted stock options, thus providing an incentive to remain with the company till they become due. The company, though, is an average paymaster, which disadvantage it tries to trade-off by offering a more challenging work environment, quicker promotions and chances for practicing innovation. Critics say that that iGATE lacks the big-brand appeal of the larger players such as Infosys and Wipro, cannot compete on scale and is still under the shadow of its original business of body-shopping IT personnel. Questions 1. Analyze the IGATE case to highlight how it could apply some of the strategic controls such as premise control, implementation control, strategic surveillance and special alert control. 2. Analyze and describe the process of setting of standards at iGATE. 3. Give your opinion on the effectiveness of the role of reward system in exercising HR performance management at iGATE and suggest what improvements are possible, given the environmental conditions in the IT/ITES industry in India at present.