Corporate: Bosch-Siemens Hausgerate's Indiagate

STRATEGY
BOSCH's ripple effect

The company's future lies in its ability to slash prices, which can be done only when it sets up manufacturing facilities in the country.

By Nita Jatar Kulkarni

Call it a first-world mental block. Hans Peter Haase, Executive Vice-President (International Sales), Bosch-Siemens Hausgerate (BSH), finds it difficult to believe that there can be a country where municipal water is available only for a few hours in the day. That's perhaps one reason why the German white goods major is still testing the waters in the Indian market. One indicator? Despite the fact that the Rs 5,000-crore Indian white goods market is growing by close to 20 per cent a year, the three-year-old BSH Home Appliances-a fully-owned subsidiary of BSH-has so far made tentative forays only in the southern and western markets of the country.

Caution seems to be the corporate credo at BSH Home Appliances: the company entered the refrigerator market (1999 size: three million units) only in the last quarter of 1999, and launched its dishwashers as late as in January, 2000. ''We want to be profitable right away. And we prefer to focus rather than scatter our energies,'' explains a defensive Vipul Raval, 36, Managing Director, BSH Home Appliances. Only, the company's focus seems to have been achieved at the cost of speed and volumes. Especially for a company that is Europe's largest white goods-manufacturer (11,000 washing machines roll out of its Berlin plant every day). Quite expectedly, BSH Home Appliances' presence in the market has created a ripple.

The Price Barrier

Even before it entered the market, BSH Home Appliances had decided that it would restrict its focus to the premium end of the market. That decision may well have proved its undoing. For, even the very affluent would think twice before shelling out Rs 22,000 for a washing machine or Rs 29,990 for a dishwasher-those are BSH Home Appliances' list-prices. Concedes Haase, 59: ''We are restricted by the price factor.'' Result? An insignificant presence. In Mumbai, BSH boasts a 50 per cent share of the premium front-loading segment of the washing machines market, which constitutes a mere 6 per cent of the overall market (1998 size: 1 million units).

The problem is accentuated by the fact that BSH imports the products it sells in India; low volumes do not justify the creation of a manufacturing-base. And the prevailing tariff of 68 per cent leads to high prices. Ironically, the volumes that warrant a manufacturing facility are there for the taking for a low-priced product. Explains Kiran Khalap, 41, co-founder, Chlorophyll Brand & Communications Consultancy: ''The need for a product like the dishwasher exists, and the market will explode if a manufacturer offers a simple machine at a low price.''

A manufacturing facility would require huge investments: an economic-size refrigerator plant, for instance, can cost dm 100 million; a washing machine one, an incremental dm 30-40 million. Raval insists the Rs 19-crore BSH Home Appliances will set up one in two years: ''It's just that we are yet to develop a time-frame to start a manufacturing base.'' Haase is more circumspect: ''We will wait and watch to see how the market grows.''

The Competition Barrier

Waiting is the last thing BSH can afford to do. Not when the competition has aggressive plans to carve up the white-goods market. Godrej-GE and Electrolux together account for one out of every two direct-cool refrigerators sold, while BPL has cornered a 31 per cent share of the frost-free segment. BSH Home Appliances which (like BPL) operates only in the frost-free segment could benefit from the fact that almost half the people buying frost-free refrigerators are replacement-buyers who, consequently, may be more open to the concept of a premium refrigerator.

Things are hotting up: Godrej-GE, which has a 14 per cent share in the frost-free segment, has launched 'designer' refrigerators with colour images on door panels. And market-leader BPL has launched its Converti model-with a freezer that can, at the switch of a button, function like any other part of the refrigerator-and is now looking at models based on non-cfc technologies. This activity in the frost-free segment is only to be expected. Says Shyam Motwani, 38, General Manager (Marketing), Godrej-GE Appliances: ''The frost-free segment will grow at 25-30 per cent in the next couple of years, which is higher than the growth rates of 2-5 per cent in the direct-cool segment.''

In the washing-machine segment, BSH Home Appliances has no plans to launch products in the top-loading segment, sales of which accounted for almost 70 per cent of the market in 1999. Instead, the company is betting on front-loading machines. Explains Raval: ''Front-loaders are the future. They are environment-friendly because they consume less water.'' That USP, though, may take a while to catch on. Says J. Arvind, 49, Head (Marketing & Sales), Washing Machines, Videocon International: ''In the fully-automatic segment, the volumes are likely to come from the top-loaders.''

That isn't all. Companies like Videocon plan to launch low-priced front-loading models too. While Videocon is introducing a front-loader priced at Rs 17,900, BPL is poised to enter the segment too. And a slew of others like Whirlpool, IFB, and Electrolux are well-entrenched at various price-points.

In the final reckoning, BSH Home Appliances will realise that price is a critical P of the marketing mix in the Indian context. As is place (distribution). There, the company finds itself wanting: it has a mere 200 dealers while Videocon and Godrej-GE have a network of 1,800-2,000 and 12,000 dealers, respectively. Admits Haase: ''One reason why we have not expanded in north India is that we do not have the requisite infrastructure there.'' Clearly, the future of BSH Home Appliances lies in its ability to slash prices, which, in turn, will happen only if it sets up a manufacturing facility in India. Only then can it prevent its India strategy from becoming a washout.

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