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CASE STUDY The Local Dynamics of a Global Strategy Continued.. SOLUTION A
I. BUYER POWER. Buyer power is the biggest, and most important, force in the tyres business. TIL has one of the best product-recalls among all the brands in the country; it should now focus on brand-building. A study which identifies market segments, by looking at geography, demography, and disposable incomes, would be an apt beginning. That should be followed by a two-pronged marketing strategy that relies on both dealer-push and customer-pull. Advertising, focused on select segments, must capitalise on the poor customer-knowledge and distribution-reach of the foreign companies. And TIL must do that quickly since the transnationals have already started the process of building distribution networks. The main aim of the dealer-push should be to identify dealers who can promote the company's products, increase its marketshare, and enhance its distribution muscle. TIL's marketers can select a network of dealers on the basis of 3 critical factors: location, performance, and growth potential. The company must impress on its dealers the need to maintain a Just-In-Time (J-I-T) discipline. In a business where inventories are piling up at both the buyer's and the supplier's end, this is the surest way of reducing costs. Such a drastic transformation is, however, unlikely to happen quickly. TIL must rely on incentives to push change. For instance, dealers that sell a minimum number of Stock Keeping Units (SKUs) should qualify for the company's retail outlet-enhancement programme, which seeks to improve showroom ambience. In a JIT regime-where the lean management of SKUs is key-the company can easily do away with its credit policy, which it appears to have relied on so far to boost sales. Ultimately, both the dealer and the company are likely to benefit from the scheme in a big way. The dealer's benefits: zero-cost inventory, cash transactions, incentives for higher sales, and investments in infrastructure at no extra cost. The benefits to the company are more significant: abolition of the costly credit policy; assured offtake at the dealer-level; scientific classification of dealers; and accurate information-flows. TIL's best bet lies in creating customer-pull in both segments: the OEM, and the replacement markets. In the OEM market, TIL must position itself at the top of the Preferred Supplier list. To do so, the following plan is essential: SKUs should be available to the customer at the right time, of the right quality, at the right price. This will enable TIL to hone its competitive edge. But the manufacturer must also manage its own supply chain efficiently. By ensuring that its vendors manage their inventories effectively, TIL can reduce the cost of inventory at its end, and pass on the benefits thus accruing to its customers. The replacement market needs to be analysed more carefully. TIL must segment it to find out the factors that influence decision-making there. And value propositions for each segment need to be worked out. II. SUPPLIER RELATIONSHIPS. TIL pays the highest unit price for every one of its raw materials even when the volumes bought by it are large. Strategic sourcing and purchasing, which entails forging healthy partnerships with suppliers, can slash product-costs. Only by developing its vendors through investments in technology and training programmes can TIL reinforce its upstream relationships. A central information system, which tracks material-flows, will help reduce the cost of inventory. Suppliers are, usually, not paid on time since there are no tracking-systems in place. Naturally, they factor in the cost of delayed payments in the cost of goods supplied. Prompt payments will enable TIL to renegotiate its input prices. III. INTERNAL CAPABILITIES. Lean processes, with short time-to-market and cash-to-cash cycles, can help TIL build on its manufacturing and marketing capabilities. Naturally, TIL's brand-building efforts must be accompanied by the institution of an Enterprise Resource System. It will, for instance, help the tyre-manufacturer predict trends better, devise strategies to deal with tomorrow, and take remedial action quickly. IV. ENTRY-BARRIERS. The best way a well-entrenched player can fend off competition is by erecting entry-barriers. For instance, TIL can acquire new capacities and enhance its economies of scale. That would force new players to think twice before entering the market. After a product- and market-strategy has been devised, TIL must identify its areas of interest and disinterest. Once this has been done, it can target new acquisitions. Perhaps a slowdown is the right time to buy out rivals since their financial ailments may actually disguise the quality of their manufacturing facilities or products. A good leader knows which areas to focus on, and which to withdraw from. TIL has built quite a few strengths in the domestic market. It should identify a competitor that can occupy niches that are of no strategic interest to itself-areas which ATC may be keen on entering-and get out of them. Only through such tactics can TIL lessen the impact of transnational competition on its future. SOLUTION B
I do not agree with Ramachandran's plans of providing more credit to TIL's dealers. If his sole objective is to move the tonnage, his idea might click. But, if his gameplan is to block the entry of ATC, he could face a lot of hurdles. You cannot set up entry-barriers through trade manoeuvres, especially if the strategic intent of the new entrant is not to increase its sales and profits, but to build its strengths in an emerging market. For one, ATC may have factored such retaliatory manoeuvres into its India strategy. After all, a company with long-term commitment and deep pockets would be adequately prepared for disturbances in its cash-flows and sales. Trade tactics are unlikely to force ATC to rethink its strategies. In fact, TIL's moves will prove to be counter-productive. Even if its tactics-such as providing its dealers liberal credit- terms-succeed, they will, ultimately, increase the company's interest-burden. If Ramachandran does not get additional money from the company, he will not be able to achieve the sales targets for the next financial year, let alone plugging the previous year's gaps. But why does a business like TIL accumulate deficits? There are enough pointers to show that the primary cause is the business environment itself: the tyre market is not growing because TIL's customers-the automobile-manufacturers-are in the doldrums. Surprisingly, that is not the case with TIL, which appears to be in the pink of health. Its customers are satisfied, and its marketshare is rising despite the fact that its sales are below target. If the company wants to grow despite the slowdown, it should not resort to tactics like liberal dealer-credit terms. They merely transfer the stock from the company's warehouse to the trader's. Instead, the company should reward the customer handsomely for buying its products. There is ample evidence worldwide that such promotions work better for brand-leaders. Only then will TIL be able to strengthen its position. In the long term, nothing will work better than segmentation. If the requirements of the HCV segment are different from those of the LCV and the passenger-car segments, TIL can benefit from developing customised packages for each one of them. They should be diverse enough to signal that each market segment is getting a utility package custom-designed for it. TIL's strategists must be aware of the fact that brand utility does not merely depend on product-quality and price. Warranty, shopping convenience, after-sales service, brand image-all that increases brand utility. The test of what adds value to the customer lies in seeing an offering from the segment's point of view, and tailoring it to its changing requirements. To derive the full benefits from segmentation, not only should TIL's product-pricing and branding be different, but the infrastructure-sales and distribution channels-should be dissimilar as well. The market leader can even look into the possibility of re-organising itself into independent profit-centres to serve different segments simultaneously. Out of the 4 market segments-Heavy Commercial Vehicle, Car, and Original Equipment Manufacturer-the first-named must become TIL's focus area if it wants to retain its leadership position. After all, this is the biggest segment. Besides, it is also the litmus test of the competitiveness of the company in 2 critical areas: dealer reach, and the mileage-cost ratio. If the company is doing well in the HCV replacement market, it implies that its health is sound. Are TIL's fears misplaced? Can local manufacturers survive transnational competition? Surely, the market is not going to change in a day. The strengths of local companies will hold them in good stead in the long run. But they must bolster their sourcing, manufacturing, and marketing capabilities. Usage- and purchase-patterns indicate that radial technology will take time to be accepted. That is the time-lag that local manufacturers must utilise to increase marketshares, source technology, or enter into collaborations with the global majors. Those that don't are doomed. Competition is unlikely to provide them with more breathing space. Like the local manufacturers, the transnationals too have their own problems. Any transnational that is serious about the market will have to set up a manufacturing-base in the country. And when it does so, its raw material costs will not be much different from those of the local players. While the transnationalisation of the tyre industry has been going on for the last 6 years, the evidence suggests that, except for a few upmarket Indians who are exposed to international media, the rest of the country is not exactly enamoured of labels. After all, performance builds reputations; not vice-versa. Unfortunately, this fact is little understood by the domestic tyre-manufacturers. All told, TIL must not offer liberal credit- terms to its dealers. Instead, the tyre-manufacturer must plan a customer-pull promotional strategy, sharply focus on the HCV replacement market, and create profit-centres to service different segments. It must focus on the customer. If you serve her better than a transnational, she may prefer your brands over a transnational's. ATC cannot be stopped in its tracks, but TIL can still lead the market. ADDITIONAL READING |
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Tyres India Ltd (TIL) is faced with
problems that are common to most industry leaders in this country. Changing customer
priorities, cheaper imports, sluggish domestic demand, and costly credit are the new
concerns of even the top performers, confronted as they are by transnational competition.
Fundamentally, there are 4 things TIL should do to retain its leadership. It should
influence buyers, forge relationships with suppliers, enhance its internal capabilities,
and raise the barriers for new entrants. 
When the market is hot, the management has
to be cool. It is the top management's job to make sense out of the picture it visualises.
It has to act today based on the picture that it sees tomorrow. But such a picture is
almost always clouded by the dust of day-to-day operations, and the management's challenge
lies in formulating, and sticking to, a strategic vision. 