Choice galore: A supermarket can act as a starting point for an RIT revolution, with a strong distribution network and a good brand recall

Picture this scenario: company r drills for oil, refines it, uses some of that oil to make polyester and polymers, and markets some of it as transportation fuel. The polyester goes into making textiles and the polymers for making furniture and packaging film (to name just two end-uses). The company also drills for gas, which is used to generate power. That power is transmitted and distributed to millions of consumers. Company R then kicks off a wireless and fixed line telecom providing venture. Finding takers isn't difficult: The millions of (satisfied) electricity users are potential customers (new ones are of course welcome). Why, the nationwide broadband network that's been created can provide connectivity at the gas stations that market the transportation fuel. Emboldened, Company R flags off an insurance business, and is eager to cross-sell general and life insurance products to its electricity users and telephone subscribers. The final piece of the convergence play is courtesy a foray into organized retail (of food and lifestyle products). Who needs a bank, shrugs CEO of Company R; the supermarket could well prove to be a better distribution channel-not just for insurance, phones and calling cards, but also for other financial products like home loans. What's more, existing R-telecom users can be informed about attractive schemes available at the supermarket. There couldn't be a better way to build brand loyalty-the process begins even before the customer enters the store! Company R's CEO is beaming: He's managed to carve up a chunky share of the wallets of a billion customers.

Call it convergence, integration, or straddling the value chain, the example above illustrates how it is possible for a company to target virtually the entire country's population with an integrated portfolio of products and services. Company R is of course based on a real-life example-the Reliance Group that existed before brothers Mukesh and Anil went their separate ways. Before the split, Reliance Industries Ltd (RIL), with its famous wellhead to wall socket strategy, had a grand ambition of targeting over 1 billion consumers via its forays into energy, telecom and financial services. But it isn't as if the two brothers have abandoned their strategies for convergence after the settlement. RIL Chairman Mukesh doesn't have telecom in his stable, but is blueprinting a retail game plan of gargantuan proportions. Anil, now the spearhead at the Reliance-Anil Dhirubhai Ambani Group (R-ADAG) is leading his charge with telecom, telecom retail (with its nationwide chain of Webworlds), insurance and other financial services (under Reliance Capital).

RATAN TATA Chairman/ Tata Group

Telecom: Tata Teleservices Ltd (TTSL) is the company that provides pan-India wireless and wireline services apart from a host of broadband offerings. Also majority owner in VSNL, which provides international long-distance services and bandwidth Total revenues: TTSL's estimated revenues for 2005-06: Rs 5,320 crore VSNL's revenues for 2005-06: Rs 4,799 crore Current subscriber base: TTSL: 11.34 million VSNL's customer base: Not available Insurance: Joint venture with AIG for life and non-life insurance through Tata AIG Life Insurance Co. and Tata AIG General Insurance Total revenues: Underwritten life premium for 2005-06: Rs 463 crore Underwritten general premium for 2005-06: Rs 612.38 crore Customer base: Number of policies/schemes for 2005-06 for life: 2.95 lakh Retail: Trent owns the "Westside" stores, which cater to categories such as menswear, womenswear, kidswear and household accessories. Also present in hypermarkets and bookstores (Landmark) Total revenues: Rs 357.59 crore for 2005-06 Customer base: Not available

Few business groups-Indian or global-would be able to replicate an RIL-like exploration-to-consumer strategy, but take a glance across the country's corporate landscape and you will discover that some of the biggest conglomerates have in common three sunrise, consumer-oriented businesses: Retail, Insurance and Telecom (let's call it RIT). Along with the R-ADAG Group, the Rs 82,717-crore Tata Group too has an established presence across RIT (although it must be said that R-ADAG's retail exposure is limited to telecom). The Rs 38,570-crore Aditya Birla Group is a play to reckon with in cellular telephony and financial services, including insurance, and Chairman Kumar Mangalam Birla is working on a retail plan, although he isn't ready to share it yet. Similarly Sunil Mittal's Rs 14,000-crore Bharti Group, after emerging top dog in cellular telephony, has insurance and retail designs on the drawing board. Move over ice (information technology, communications and entertainment) and TMT (telecom, media and technology), the new consumer-oriented paradigm is RIT. As Rajiv Memani, CEO & Country Managing Partner, Ernst & Young India, points out: "The reasons the big groups are in these sectors are because they're sunrise sectors, they offer a huge opportunity to scale up, and they offer limitless possibilities for cross-selling."

THE BPO LINK

India's biggest conglomerates may all be chasing the Indian consumer with a broad array of retail, insurance and telecom products and services, but there's yet another sunrise sector that's common to the Big Boys: IT enabled services-business process outsourcing (ITES-BPO). The nature of the business, though, is very different from the RIT bunch: Customers are all enterprises (many of whom are in fact retail, financial services and telecom companies), and almost entirely global. Yet, as far as growth rates and opportunity go, ITES-BPO is blazing its own trail. In 2005-06, the industry grew 37 per cent over the previous year to $6.3 billion or Rs 28,350 crore then (all exports), and is expected to hit $8-8.5 billion (Rs 37,600-39,950 crore) in the current year. Small wonder the cream of India Inc. has got a toehold in this growth sector. By acquiring TransWorks (it was among the largest players in the BPO segment in India) in 2003, the Aditya Birla Group entered the BPO/customer relationship management (CRM) space. And only a couple of months ago, TransWorks acquired the Canada-based BPO Minacs Worldwide Inc. Together TransWorks and Minacs are expected to have a revenue base of $300 million (Rs 1,410 crore). The Tatas with IT services pioneer, TCS, would arguably be best placed amongst the four in ITES-TCS offers BPO from eight global delivery centres. Another BPO company in the Tata stable, SerWizSol, handles 10 million transactions per month. The Bharti Group has a company called TeleTech Services (India) Ltd, a joint venture between TeleTech Holdings of the US, which offers a slew of services in the areas of customer management solutions and BPO. Reliance-ADAG's foray into BPO is through a company called Reliance Infostreams Private Ltd (RIPL).

KUMAR MANGALAM BIRLA Chairman/ Aditya Birla Group

Telecom: The group holds a 98.3 per cent stake in Idea Cellular, which operates in eight cellular circles and has applied for licences that will increase its presence to 23 circles Total revenues: Rs 2,409 crore for 2005-06 Current subscriber base: 9.12 million Insurance: Has a joint venture with Sun Life Financial of Canada. Birla Sun Life Insurance has a focus on investment-linked insurance products Total revenues: Underwritten premium for 2005-06: Rs 678.09 crore Customer base: Number of policies/schemes for 2005-06: 2.65 lakh Retail: At the drawing board stage. Retail presence exists with apparel brands like Louis Philippe and Van Heusen, and this could be leveraged further Total revenues: Not available Customer base: Not available

Humongous Opportunity

Focussed approach: Reliance Group's Mukesh Ambani (left) and M&M's Anand Mahindra

Consider first the humongous opportunity waiting to be tapped. The telecom and insurance sectors are under-penetrated, as is organised retail. Consider retail, for instance. The most optimistic estimates reveal that barely 3 per cent of India's retail sector is accounted for by the organised segment. Items of daily purchase like newspapers, magazines, cigarettes and even garments are still sourced from the unorganised route by most consumers. The entire retail market (organised and unorganised), according to a research report put out by Motilal Oswal Securities a few months ago, is pegged at a mind-boggling Rs 9,30,000 crore, with the organised share standing at Rs 28,000 crore.

Insurance is pretty much a similar story. The opportunity lies in the extent to which India is under-insured. Before the sector was opened to private participation, the average size of a life insurance policy was approximately Rs 50,000. That number has almost doubled and those policies that are sold by the private players have a ticket size in excess of Rs 1 lakh. But the lip-smacking numbers are the ones of penetration: Insurance gets across to about 2.65 per cent of India's population in the case of life and 0.53 per cent for non-life. As far as telecom goes, the industry has perhaps made the most progress, with the total wireless subscriber base itself standing at 113 million as of July. Says Harish Bijoor, CEO, Harish Bijoor Consults Inc.: "In India, most consumer categories have low penetration levels. Retail is small on the organised front, telecom has low tele-density and in the case of insurance, this is a pathetically under-insured country."

HORSES FOR COURSES

So what are the other Indian conglomerates up to? If you look at the largest of them, Mukesh Ambani's Reliance Group, he's pretty much a commodities giant, covering the entire petroleum spectrum, right from exploration to refining to marketing. Flagship Reliance Industries Ltd (RIL) is a colossus in petrochemicals, textiles and refining. But Ambani too has been lured by the retail opportunity, and in true RIL style he's foraying into this sector with a blueprint of giant proportions that covers various formats as well as the length and breadth of the country. One conglomerate though that hasn't been seduced by the sunrise services sector is Anil Aggarwal's Vedanta Group. Flagship Sterlite Industries, the UK-headquartered Vedanta Resources, Bharat Aluminium Co., Hindustan Zinc and Madras Aluminium (the last three being acquisitions) are all mining and metals-copper, zinc, aluminium, lead, gold-companies. Another metals player, albeit with not such a narrow focus, is the Ruias-promoted Essar Group, which is positioned as an infrastructure and energy monolith. Its interests: Steel, oil, shipping and telecom, in a joint venture with Hutchison of Hong Kong. One group that's diversified with fervour without losing focus is Mahindra & Mahindra. It started out as a tractors manufacturer, then moved into areas like utility vehicles, financial services and engineering services, and infrastructure development. Then there's the Bajaj Group, a name to contend with in the two-wheeler and three-wheeler business, which has also forayed into general and health insurance, in a joint venture with Allianz of Germany. Today Bajaj Allianz is the largest private player in life segment and #2 private player in the general insurance space, riding on the synergy that Bajaj's nationwide two- and three-wheeler distribution network brings to the table.

SUNIL MITTAL Chairman & Managing Director/ Bharti Enterprises

Telecom: Bharti Airtel is the #1 cellular operator, providing services on the GSM platform Total revenues: Rs 11,290 crore for 2005-06 Current subscriber base: 24.33 million Insurance: The group has a joint venture with AXA called Bharti AXA Life Insurance Co. It is yet to announce its range of products Total revenues: Not applicable Customer base: Not applicable Retail: The retail plans are expected to be unfurled in a couple of weeks. Tesco is said to be the firm favourite to partner Bharti. The group is looking at all formats Total revenues: Not applicable Customer base: Not applicable

Telecom was the first industry to be thrown open to the private sector (and to foreign investment), 10 years ago. Insurance followed four years later. Which explains probably why business groups with the RIT connection would have made the most progress in the wireless and wireline arenas. And the synergies would consequently begin from that point. For instance, a business group could begin creating brand loyalty early in the shopping process by delivering the right information (about discounts on offer) before the consumer enters the store. Once she is through with the shopping process, the store could serve as a bank branch, offering insurance and other financial products to the consumer. And as Bijoor points out: "A telecom user would need insurance and will peck at the top end of retail." But as P. Nandagopal, CEO, Reliance Insurance, says: "The positioning of the offering is important. It is critical to ensure that people are properly serviced as far as the offering is concerned." Nandagopal adds that familiarity with a brand or service helps in the cross-selling process. Example: Reliance telecom users are more likely to buy Reliance insurance products than non-Reliance phone users. Adds Bimal Balasingham, Director, Tata AIG Life Insurance: "The name of the game is customer convenience. We definitely want to exploit the commonalities that exist between insurance and telecom. Our initial focus will be to build distribution capabilities and an expertise on the back-office front. We will ramp up our plans as far as getting across to the Tata Indicom customers is concerned over the next two years." As far as the retail angle goes, Balasingham says Trent could work out an arrangement with Tata AIG, similar to the one AIG has in Indonesia, where it sells its products at the Matahari retail chain.

The Rajah of retail: Future Group's Kishore Biyani

An Indian Phenomenon

The RIT phenomenon might well be a very Indian one, and that may have a lot to do with sequence in which these three sectors were liberalised. Sanjeev Aga, Managing Director, Aditya Birla Nuvo, says his group's decisions to venture into telecom and insurance were pretty independent of each other. "A decision to get into these businesses was taken after an in-depth understanding of each sector...It is only in India that this pattern (of RIT) has emerged," adds Aga. The Bharti Group, which has penetrated deep with its telecom venture, is now looking at life insurance and retail (of food and groceries) in tandem, in line with its policy of focussing on "high-impact business ventures". While target consumers would by and large remain the same, Bharti would try to attract a larger share of the increased individual earnings through insurance plans and retailing. Using the brand and its existing market reach.

Globally, the convergence and cross-selling in a bid to extract a maximum share of a consumer's wallet usually begins with retail. That's because a store in any format (the bigger the better) is a perfect location to home in on a consumer and bombard her with an array of products and services. In the UK for instance, retailers like Sainsbury's, Tesco and Marks & Spencer have gone the whole hog into financial services, and today pose a significant threat to conventional retail banking. Reason? Their brands are stronger, their operational costs are lower and their customer bases are larger by far. Back home, the Future Group's Kishore Biyani appears best set to follow the UK paradigm, simply because retail was his first major foray. Sure enough, he's now widening his offerings to include insurance and communication products and services (see The Biyani Model). "While this may possibly not be in line with conventional wisdom, we see a lot of opportunities in our retail customers becoming our insurance customers too," says Biyani.

THE BIYANI MODEL

He's eyeing the wallet of every Indian consumer. And he doesn't want just a slice of it, but almost all of it. Kishore Biyani, the CEO of the Future Group, is today acknowledged as a pioneer in the Indian retail sector and has under his belt well-known brands such as Pantaloon, Big Bazaar and Food Bazaar. Biyani's presence in retail cuts across the entire spectrum and includes, among other things, apparel, food and groceries, fashion, consumer electronics, and stand-alone malls. Now, Biyani has gone one step further and will be a player in the insurance sector as well. A couple of months ago he announced a joint venture with Italy's Assicurazioni Generali, which will make him the latest entrant in the life and general insurance businesses. Not just that, Future Capital, the financial services arm of the group, will go all out to tap consumer savings. And there's the telecom connection too: Biyani will hawk communication products through multiple formats like mBazaar (small outlets), mPorts (independent stores) and mPod (touch-screen interactive kiosks). "The target group for our insurance business will be those visiting the malls. Today, we are dealing with over 10 crore consumers, which itself is a huge opportunity," he explains. Unlike a Bharti, which started off with telecom, and is now looking at insurance as an extension, Biyani is using the retail platform to open up other possibilities in financial services. The Future Group model wouldn't be too different from those of UK retailers Sainsbury and Tesco, both of which have forayed into banking.

ANIL AMBANI Chairman/ Reliance-Anil Dhirubhai Ambani Group

Telecom: Flagship Reliance Communications includes Reliance Infocomm, Flag Telecom and Reliance Telecom. It provides both CDMA and GSM services Total revenues: Rs 3,250 crore for the first quarter of 2006-07 (the company did not report financial numbers for 2005-06) Current subscriber base: 21.43 million for the CDMA service, 2.51 million for the GSM service Insurance: Has a presence in life through Reliance Life Insurance Co. and in general insurance via Reliance General Insurance Co. Both the companies are a part of Reliance Capital Total revenues: Underwritten life premium for 2005-06: Rs 193.43 crore Underwritten general premium for 2005-06: Rs 162.33 crore Customer base: Number of policies/schemes for 2005-06 for life: 0.79 lakh Retail: This is through stores across the country that sell the Reliance range of telecom and convergence-related products and services (it is called "Webworld") and could soon sell insurance products. The group is also said to be in talks with the All India Organisation of Chemists and Druggists Association for a joint venture for pharma retailing Total revenues: Not available Customer base: Not available

Clearly Indian conglomerates with an RIT presence are well placed to exploit synergies at the customer level and in the process reap bumper profits. Yet, there's little guarantee that success in one sector will automatically result in success in the other two. "While there are common customer threads, it needs to be understood that a lot will depend on customer loyalty and customer stickiness. What's more, retail requires expertise in supply chain management, which may not be that relevant in insurance or telecom. On the other hand, the quality of infrastructure is more relevant for a sector like telecom" says Naimish Dave, Director, OC&C Strategy Consultants. There's little doubt, however, that business groups with the RIT connection are closest to the consumer. Killer products and services in the three sectors backed by an immaculate distribution network will go a long way in keeping the customer satisfied. As Ajay Kakkar, Head (Branding), Reliance Capital, puts it: "Once you meet the need of a consumer, you have her hooked. Once you have a relationship, she's "doubly-hooked". To be sure, there's a possibility of a "triple-hook" with RIT.

-additional reporting by Amit Mukherjee