Joint Ventures: Will TACO Prove to be Bigger Than Telco?

JOINT VENTURES
Can Grundig Solidaire Its Future Again?

This loss-making CTV minnow can't count on either of its parents for technology - or money.

By R Sridharan

Grundig's S K Sivagnanam For the last two months, S.K. Sivagnanam, the General Manager of Grundig India, has been living out of a suitcase. Nothing out of the ordinary for the 34-year-old sales-and-marketing head of a transnational consumer electronics company, you would say. But Sivagnanam--filling in for Managing Director Werner Mirsberger, who is away in Germany--is actually running around the country shutting down 6 of the company's 11 branch-offices. And he has handed out pink slips to 80 of the 120 employees he has met. "We have to do this to survive," he shrugs.

Five years after the CTV-manufacturer entered the sub-continent, Grundig India is grunting for survival. A 74.90:25.10 partnership between the Fuerth-based Grundig AG and Solidaire India, it has a piffling 1 per cent share of the Rs 3,900-crore CTV market. Its accumulated losses in 1997 were Rs 8.50 crore. And, in the last calendar year, Grundig India's losses will cross Rs 10 crore--twice its net worth of Rs 5 crore.

What doesn't help matters is that parent Grundig AG--which itself ran up losses for the better part of the decade--is just about turning around. No longer controlled by Philips, the one-time European giant is busy re-evaluating its own portfolio. In response to a questionnaire from BT, a spokesperson for the transnational says: "To continue on the path of the turnaround, all Grundig activities are under scrutiny. Organisational changes might be necessary as a result of the analysis. However, no decisions (have been) taken for the time being." Ominous.

Globally, Grundig AG competes on the strength of its brand and technology. Paradoxically, both have been its Achilles' Heels in this country. Apart from a defunct brand personality, feedback revealed that, functionally, Grundig CTVs had lower resistance to voltage-fluctuations, and needed strong broadcast signals for visual and audio clarity. Moreover, these CTVs were also weak on sound quality, a major problem in this entertainment-oriented market. Rectifying these mistakes took time. Regrets Sivagnanam: "That put us back by at least 2 years. We could not go aggressively into the market."

Between 1995 and 1997, when Grundig was reworking its CTVs, the number of players in the marketplace soared from 10 to 16. At a time when the scales of production in the industry have shot up to 1.30 million units a year, Solidaire India's Perungudi (Chennai) facility boasts a capacity of just 100,000 units. With neither new products to launch nor strong distribution strengths, Grundig has quietly slipped to the bottom of the pack. Even today, the company's 1,000 dealers are unable to push more than 35,000 sets a year. That is, less than 3 sets a month per dealer. Points out M.J. Xavier, 44, Professor (Marketing), Academy For Management Excellence: "Grundig is caught between local companies that have excellent channel strengths and transnationals that enjoy technology leadership."

Grundig doesn't lack for effort, though. Two months ago, it launched two new ranges of CTVs: an economy line, the Pico Series, and another features-loaded offering, the Fine Arts series. And the company hopes that its downsizing will halve its operating expenses. For instance, the disbanded branch network will be replaced by a distributor system, with 1 or 2 distributors for each state outside South India, apart from Delhi and Guwahati, where the branch-offices will be retained.

Despite this, the odds are stacked against Grundig. Apart from the lack of R&D skills, the company doesn't have deep pockets to build a differentiated brand image. Even its presence in only the CTVs market means that it will not be able to spread its distribution costs over a number of products. Warns Nabankur Gupta, 49, Director (Marketing), Videocon International: "CTV prices have eroded by 12 per cent over the last 2 years. Your manufacturing strategy must be geared to deal with this."

Sure, Solidaire India--which manufactures and sells its own brand of TVs--could pump in more money into the joint venture, but it too is making losses (net losses of Rs 46.38 crore in 1997-98). If Grundig does opt out of the joint venture, Solidaire will have the first option of purchasing the German company's stake. Although A.S. Ramana Prasad, the CEO of Solidaire India, was not willing to disclose his strategy, he will be visiting Grundig's headquarters in late February, 1999. And that could seal the fate of Grundig India's fading fortunes.

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