Business Insights: 2007

Tuesday, December 25, 2007

Forecasts for the economy & markets in 2008

Author: Abheek Barua, Chief Economist, HDFC Bank
Source: Rediff

Since this is my last piece this year I thought I would write about the forecasts I have made for the global economy and financial markets for 2008. There is an important caveat, of course. The global macroeconomic and financial environment remains terribly volatile and a number of these predictions could go wrong.
Let me get to the forecasts. The jury appears to be still out on whether the US is headed for a recession next year (going by the textbook, a situation in which GDP growth turns negative for two successive quarters) or whether swift action by the US Federal Reserve is likely to prevent such a situation. US consumption data like retail numbers occasionally surprise positively and US inflation is far from dead. However, despite this bit of fuzziness I remain somewhat sanguine about the following trends.

Whether it qualifies technically as recession or not, the US is likely to see a marked slowdown at least in the first half of 2008, which could last well into the second half of the year. Besides, despite central banks' best efforts, it will take a while for American and European banks to resume lending to each other and to even slightly risky borrowers. Thus, I see the credit squeeze in the US and Europe continuing and perhaps even getting worse in the near term.

The US slowdown is likely to have knock-on effects on the global economy and world GDP growth is likely to moderate. More specifically the result of sharp currency appreciation, harder interest rates and a credit squeeze will begin to take a toll on euro-zone growth. The UK is well into a cyclical downturn.

As I have argued in earlier columns, I think it is impossible for Asian economies to remain immune to a downturn in the developed economies and growth rates will soften in this region as well. I honestly don't know much about Latin America but I think it is sensible to assume that what applies to Asia applies to these economies as well.

Global energy and food prices are likely to remain elevated in the first quarter but are likely to dip subsequently as demand compression on the back of slowing world demand begins to reflect in prices. I am, for example, convinced that concerns about fresh oil supplies and oil peaks notwithstanding, slower global growth is fundamentally incompatible with oil prices at over ninety dollars a barrel.

The same logic might just apply to other assets including stocks. If indeed the signs of global slowdown become more acute, large investors might begin to dump equities and hold on to safer assets like treasury bonds. If there is growing aversion to equities as an asset class, Asian markets (including Indian stock markets) will also take a hit. The slide in stock prices will not be due to risk-aversion alone.

If global growth slows, the slowing down will begin to impact the top line and bottom line growth of companies across economies. That in turn will buttress the negative sentiment towards risky assets. The bottom line: be prepared for a "correction" in the Indian stock market next year.

There is a potential offset. The US Fed is likely to follow a policy of phased quarter percentage point cuts in its target interest rate - I expect the American central bank to cut the Fed funds rate thrice next year. Thus while inflation risks will weigh on the Fed's mind, I expect growth concerns to dominate and spur the Fed to cut rates some more. I expect the European Central Bank to hold interest rates until the second half and then start cutting signal rates.

My bank's research team has forecast two rate cuts next year, possibly in the second half. The Bank of England is likely to be swifter with two quarter percentage point cuts in the first half of 2008. We also expect more direct liquidity both through unilateral cash infusion by central banks and perhaps through more co-ordinated intervention.

The question is: what happens to all this liquidity when central banks turn on their cash spigots? If investors remain terribly risk-averse, a lot of it would go into low-risk government bonds.

US treasury bond prices will continue to move up and yields will decline as this process continues. Besides, if US assets keep getting cheaper and cheaper, investors will sniff a bargain and start buying these assets. In fact, some of the bigger funds have already started picking up chunks of the American financial industry where valuations have hit rock-bottom. Asian sovereign investment funds, for instance, are bailing out cash-strapped American banks, picking up significant equity stakes in the process.

Finally, there is also a chance that some of the money will start finding its way into emerging financial markets where growth rates, at least in relative terms, will remain high in comparison with the rest of the world. What happens then? My prediction is that emerging markets including India are likely to get buffeted by the crosswinds of rising global liquidity and cheaper interest rates, on one side, and concerns about slowing growth, on the other. This means two things.

Our stock markets will remain volatile for a while to come and sharp upswings could be followed by a quick downturn. Ditto for the currency markets. The interplay of these opposing forces also means that these markets will be stuck in a range. Thus I do not see the possibility of prolonged phases of decline, nor do I see the prospect of an untrammelled bull run.

What will take the markets out of the doldrums? Since the problems of the US economy lie at the heart of all the problems, it will take some clarity on the situation there to do this. Any strong signal that the US cycle has bottomed out will lead to a quick re-pricing of risk and realignment of asset prices.

Sunday, September 23, 2007

Car Models in India

BPO Sector Outlook

According to:

Dick Vleesenbeek
- Talent shortages are driving labour markets to become increasingly more global, competitive, and employee-driven
- BPO predicted to be an $80B industry by 2009/10
- RPO (subset of BPO) estimated to grow into a $20B by 2009/10
- Vendor Management Solutions (Managed Service Provider) Market predicted to grow to be $4.2B by 2009/10
- Clients are searching for true global solutions and partners
- Trend toward complex, comprehensive solutions (workforce management models) to blend the expertise of internal/external partners
- The trend toward solutions providing off-shoring and shared service components continues
- Staffing and consulting firms face an environment of evolving legislation, increasing consolidation, and technological advancements impacting the business

Atul Subbiah
Manager - M&A Strategy at Deloitte Consulting
1. The coming of age of the major Indian suppliers
2. The unbundling of contracts where deal size is getting smaller
3. Contracts are getting shorter and work is being spread across multiple providers
4. Large deals are being split, with an increase in number of multi vendor contracts leveraging the near shore and offshore options
5. Large outsourcing contracts signed in the 1990s are coming up for re-bidding

Sunmeet Jolly
A Dropping Dollar may affect the attractiveness and ROI in Outsourcing Industry. The trend needs to be watched carefully over next 2-3 years. Rising wages in Outsourcing Providing Countries also adds to the marging pressures. But Demand for Outsourced Services will definitely increase as projected by Analyst firms. Its likely to become a high volume game and we can see some consolidation on vendor side.

Deverick McIntyre PMP
Industry Leader on China's IT & outsourcing industry
Packaged ITO+BPO+ Infrastructure Management Outsourcing is a significant new trend. We have seen this type of consolidation especially in the Financial Services industry, where, for example, the IT system supporting the outsourced business process is hosted and administered by the same vendor.

It makes sense for many clients to consolidate the BPO and IT contracts with the one vendor to achieve synergies and manage risks. This is not good news for pure BPO players, however for the large Indian outsourcers such as Infosys, TATA and Wipro, as well as international players IBM, Accenture, Cap Gemini etc, it is a perfect fit with their broad solution sets.

Packaged IT/BPO contracts are much larger than pure BPO deals and this trend has led to the increasing use of sourcing consultants such as TPI, Everest Group or smaller players such as TaidaL for thorough due diligence.

The other equally important new trend is contract pricing based on client business revenue/risk. Mainly seen in ITO contracts, the trend to package ITO with BPO will result in more innovative BPO contracts using client business based pricing. It is an interesting trend which has come about as clients force consulting companies pushing solutions to "put their money where their mouth is" and invest in the outcome. "If this solution is good for my business then partner with us in the upside (and downside) risk"

Hossam Elgamal
General Manager of GNSE Group
the Global Business Process Outsourcing sector and just after the launch of the latest ATKearny report, shows a tough competition between different emerging players and existing well established ones like India.
this competition is certainly in the favor of the business, shaping up the processes, increasing the quality and diversifying the options and resources in such global industry.
the result in the coming 1-3 years would certainly be a more rewarding choice to clients with less risk and a more framed quality of delivery, more important an observation that is taking place currently where giant players (indian ones like Satyam, TATA, WIPRO...) are having competency centers outside India to diversify their offering, minimize the risk, better control the cost and benefit more of the other countries benefits... thus becoming truely global... which in turn would lead those countries of choice to learn from the experience, build the expertise and start becoming important players in that market..

but mostly important is the fact that Clients will benefit further and more clearer from the BPO, which will come to a maturity stage.

a) the emerging significant developments/trends would be the diversifications of the countries for large BPO players, and the globalizations in the true meaning of the services.

b) driving this trend are: 1. the clients experience and need for better risk management, further more options and choices, better quality, managed cost. 2. the Giant BPO players need to maintain competitive advantage, and capitalizing on the globalization opportunity 3. the Awarness of the emerging countries in that industry, their government support, and their industry maturity.

c) as i said, the key players are moving more agressively into a globalized diversified offering, not standing still in one country only. example for that WIPRO and SATYAM moved recently to open competency centers with 1000s of resources in Egypt, as the government is agressively supporting the initiative by providing incentives, and building the capacity of the local resources, while cost is very competitive and mastering arabic as well as different european languages help providing a competitive advantage!!

Source: LinkedIn

Thursday, September 20, 2007

Future of IT / ITES / KPOs

We seem to have come a full-circle actually. Outsourcing started with low end menial data entry jobs that were discrete and modularized tasks, not interwoven into the company’s real-time environment. Then we graduated upwards to application maintenance, then onward to application development and then design and system architecture work. Call center and BPO brought about a mission-critical real-time and process driven mode of outsourcing with SLA and metrics based performance measures. With the rise of KPO, the emphasis is now on skills-based and decision-making type of work that is neither “mission-critical” nor “real-time” – yet it is more intimately tied to the top-line performance of companies than ever before in the past. With KPO, there are no metrics, no SLAs, no cultural or accent issues, no time-zone barriers and a productized consulting model that is driving a new breed of companies. With a combination of data aggregation, research, analytical, modeling and consulting skills KPO is redefining the boundaries of outsourcing.

According to me, some of the major drivers were:

• BPO found a niche customer due to a huge demand in back office customer support. BPO was and is mainly successful due to costs effectiveness and the availability of cheap labor – it found a huge pool of workforce as the unemployment rate among English speaking graduates was very high. It created a perfect sector which could find an effective solution to all its workforce requirements among the huge pool of university English speaking graduates.

Slowly countries like India found that although BPO was exploiting the general mass of graduates yet another potential pool of qualified engineering, medical, legal, financial professionals was untapped. There was a clear synergy between the mid-level staff across various companies in US & European regions and this pool in India. Gradually it was realized that the mid-level staff which is mainly involved in offering knowledge based services can be replaced with the pool of talented professionals in countries like India at a much lower cost.

• We can say that BPO has slowly reached to a stagnant point as the factor of realization of using BPO services in new avenues is decreasing. OR we can quote unquote what most industry insiders feel - With the opening of the world economy, many surprises have taken place in the business scenario. This is true for countries across the globe both from outside and within the countries.

The western world has started realizing the potential and the importance of smaller countries of Asia in providing quality services at much lesser rates and are treating this fact as a revolution. Similarly, within the Asian countries revolutionary trends are taking place in terms of expansion and spread of service providers to small cities. BPO is giving place to a new name i.e. Knowledge Process Outsourcing (KPO).

Now coming to what could be the next stage of transformation: - According to NASSCOM, KPO is expected to reach $17 billion by 2010, of which $12 billion would be outsourced to India. In the future, it is envisaged that KPO has a high potential as it is not restricted only to IT or ITES sectors, and includes other sectors like Intellectual Property related services, Business Research & Analytics, LPOutsourcing, Web Dev. Application, CAD/CAM, Finance & Accounting Management, Clinical Research, Publishing, Market Research etc.

Taking into account the huge potential of intellectual property within India, I strongly feel that next stage of KPO could be a more evolved involvement ie Consulting. As of now, we are only creating the groundwork and consultants abroad use our findings to offer advisory services to their clients. In the next 2-3 years, India could become a One Stop Shop for research, analytics as well as Consulting and Advisory services. Hence future IT/ITES SMEs in India would evolve themselves as Consulting Companies.

Tuesday, September 18, 2007

Top 3 concerns when outsourcing to Asia - Uncensored

Excerpts from one of the discussions going on at LinkedIn. Pretty interesting stuff

Here you go

Senior Software Development Engineer, Toshiba America Electronic Components
In my experience culture, distance & communication are big issues when outsourcing.

First of all, we often outsource software dev to realize cost savings. This savings is often eaten up due to logistical and cultural issues which impede the outsourced projects.

1) Communication issues: Especially with China, communication can be difficult because of the lack of qualified English speakers. I interviewed a team that had daily 10 PM phone conferences from the US to China where only 1 guy on the China side could speak English. The Americans would talk for several minutes, then the one English speaker would translate in 15-20 seconds that content to his team members. A lot was 'lost in translation'.
In another example, members of an American software team had great difficulty working with Indian team members over tele-conference because of the accent issue. The company stateside eventually fired several members of their American staff because they would not cooperate fully with the remote Indian team due to language frustration. This damaged morale of the team, and did little to help the ongoing issues.

2) Culture. Sometimes "yes" does not mean "yes". Teams think they are on the same page with their overseas counterparts, when they are not.

3) Distance (physical and metaphorical) - Software development requires a tight interface between the developers and the stakeholders / customers. When separated by distance, time-zones, culture, and language you are adding a significant project risk that the work being done will not mesh with the (often dynamic) requirements for the end product. Not only are problems more likely to occur, but it will take more time to identify them for all of the above-mentioned reasons.

Executive Producer for Video Games
The 3 biggest concerns would be:
- Cultural background: you will experience vast differences in use of color, shapes, facial features, technical detail etc. from country to country. Don't expect Western style unless you guide extremely well.

- Language barrier: definitely an issue in Japan. Not so problematic in India. Mixed in China.

- Reliability. I don't want to say we've been disappointed so far. But we are fully aware that our legal possibilites are very restricted in China and India. This is not really an issue in Japan though.

CEO Bertin Services
1.As you probably know India is the WW Leader in software development, and gatheres probably 80% of CMMI5 companies in the world... but check what is covered by their CMMI certificate to understand the major concern there : It always looks perfect (english culture). Real Life is often not so bright, although they have competencies and want to make it. dig to make a difference between what they say and what they do.
2. I'd rather go in India than in China, because they're under english culture (easier to work with), software oriented, highly educated, and India is the largest democracy in the world. but they're not so cheap...
3. Outsourcing to Asia will require a lot of lawyers' time to make sure you get a fair Deal, and will take very long in India. Let's also be clear about the risks you'll face to have them copy your production and take the business from you, especially in China.

4. Last but not least : I believe that a key of success of operations set up in Asia I was part of is a very strong involvement of Key people of your company, including having a very reliable peron (at least one) staying down there for a year to ensure everything it going to be taken care of.

Software Development Process Reengineering Manager
NINE offshoring advices.
1. Always take care of your local workers.
2. Focus on core competencies.
3. Work with big established companies.
4. Offshore projects that require minimal interfaces.
5. Do not overemphasize process.
6. Focus on communication.
7. Test offshoring team with some pilot project
8. Read some offshoring articles.
9. Conclusion and evaluation using eSCM.

Reference: LinkedIn

Friday, August 17, 2007

KPMG Predicts that Global M&A Market is about to Peak

By Big4.com Staff Writers, August 2007

Global M&A Predictor of KPMG Corporate Finance suggests that the Global Mergers and Acquisitions market is going to peak, and further predicts a fall in overall deal volumes this year. KPMG believes that in the year 2007 the global deal volumes will be much less than those achieved in the year 2006.

Global 1,000 M&A Predictor of KPMG Corporate Finance also believes that the latest data of Dealogic which illustrates increasing average deal size on lower volumes, signifies a "final hurrah" with less, but bigger deals being completed.

Stephen Barrett, International Chairman, Corporate Finance at KPMG, comments that "Global activity is about to peak, certainly in terms of deal volume, and we foresee a continued fall in deal numbers during the course of 2007."

Global 1,000 analysis of KPMG reveals that in the first five months of the year 2007, there was a major inconsistency between the main trend indicators of deal values and volumes. The study done by KPMG further reveals that in spite of conservative balance sheets, the appetite for M&A transactions seems to be slowing down.

Europe, out of the major global regions, mainly remains positive in terms of potential M&A activity. In terms of valuation, the U.S remains static. In terms of sector regions, M&A prospects seem to exist in Oil and Gas (North America), Basic Materials (North America), Utilities (Europe), Industrial (Europe) and Consumer Service (Europe). The analysis done by KPMG shows that out of all the main global regions, Europe continues shows the strongest M&A picture.

Monday, August 13, 2007

Indian M&A Deals Update (Mar-July 07)

North America and Asia were the favourite hunting grounds of India Inc on global acquisition chase as the takeovers deals in these region touched $7 billion and $4.2 billion in the first four months of 2007-08, according to Assocham Eco Pulse Study (AEP). India Inc's global acquisition deals have been worth $15.3 billion. Deals with US-based companies worth $5.1 billion were accomplished during the period April-July 2007 as tracked by the AEP in Study on Mergers & Acquisitions during April-July 2007-08. Tata Group was at the forefront with their total deal values worth $2.13 billion in steel, hospitality and automotives sector. Essar Group acquired Minnesota Steel for $1.65 billion in the US. Reliance Communication expanded to US communications market by acquiring Yipes for $300 million while Infosys plans to acquire Phillips Global for $200 million. Another big acquisition was that of Globeleq by D S Construction for $542 million.

"The equation of business relations with the western countries is undergoing a significant change. Indian business leaders are aiming inorganic expansion through the most industrialised country of the world", said Venugopal Dhoot, President, Assocham, commenting on the success of Indian entrepreneurs in acquiring high value companies based in US. Metal companies in Canada were traced by the Indian bluechips with the war chest of $1.7 billion. Whereas Essar Global acquired Algoma Steel for $1.58 billion, Aditya Birla acquired announced take over of Utkal Alumina International for $0.19 billion. Among the Asian countries, Vietnam was the largest receiver of the deal money as Tata Steel entered into a joint venture with Vietnam Steel with 65% stake for $3.5 billion. Indonesia, Israel and Singapore are the other nations.

12 August 2007, Excerpts sourced from Financial Express

Friday, August 3, 2007

Top Automakers driving for efficient logistics

2006 and 2007 have been eventful years for the automotive sector. It has seen a huge amount of restructuring, not only in its supply chain but also among the vehicle manufacturers themselves. DaimlerChrysler has ceased to exist with the sale of the Chrysler business to a private equity house and VW Group is now effectively controlled by Porsche. And a large proportion of the US component suppliers remain in bankruptcy protection. The implications of these changes for logistics are substantial. In the case of VW, there appear to have been organisational changes directed in part to creating new logistics systems. This is a response to the success of the KOVP logistics system at BMW, a major competitor to VW’s Audi brand.

While the automotive logistics markets is mature in the traditional markets of Japan, Western Europe and North America, it is growing vigorously in the new markets, such as China, central Europe, Russia and Turkey.

Over recent years, logistics has risen up the corporate agenda of almost all vehicle manufacturers. Most now either have programmes in place or are working on projects to develop their logistics systems. It has been realised by most VMs that logistics is fundamental not only to the efficient working of their assembly plants, but is also key to the management of their markets.

In parallel with the greater sophistication of these logistics systems is an increasing need for more sophisticated services from LSPs. This is seen particularly in finished vehicle logistics, where capabilities such as track-and-trace and greater visibility of inventory are now essential.

A large number of logistics providers compete for contracts with the vehicle manufacturers, which, in contrast, are few in number and well informed about the market.

The result is that operating margins among LSPs servicing this market are often poor, with low organic growth. LSPs, however, continue to be attracted by the large volumes offered.

Assembly plants can easily cost t500m and the vehicle manufacturer feels under intense pressure to utilise this investment to the maximum. This can be characterized as "production orientation".

Raw materials and components need to be fed into the assembly plant, coordinated with the production schedule. This has been perceived as the central logistics task in the automotive supply chain and one that in the past was given to production engineers.

The attitude to logistics changed in the 1980s with the emergence of the Toyota Production System. The greater prominence given to logistics-related ideas such as JIT has resulted in increased prominence for logistics managers and more integration between different types of logistics process in the supply chain.

Toyota has the most coherent approach to logistics, closely followed (but in a very different manner) by BMW. It is no coincidence that these two companies are among the most successful vehicle manufacturers.

Most passenger vehicles are made near the market where they will be sold. Even components are manufactured near the assembly plant. Within Europe, for example, it is quite usual for 90% of component suppliers to be located within 100km of the assembly plant. This supply chain geography is so pronounced that the car industry has created specific locations for suppliers next to its assembly plants, known as supplier parks. Components are then fed directly into the assembly plant often using conveyer belts or forklift trucks.

The use of supplier parks also improves communication between component supplier and vehicle manufacturer.

But Tier 1 suppliers are also faced with the contradictory demands of vehicle manufacturers. On the one hand they want suppliers to invest in logistics or assembly facilities near assembly plants, but are unwilling to commit themselves to suppliers for long enough to ensure that the investment is covered. Consequently there is a danger that suppliers will be left with facilities at or near the VM's assembly plant which are redundant or under-used.

Many LSPs view this as an opportunity for outsourcing, with several suppliers sharing facilities owned and run by the LSP. This appears logical, but conflicts with the unwillingness of many T1 suppliers to outsource assembly operations which they regard as core competencies.

Logistics is usually one of the core functions of such near-plant facilities. Their main function is to break-bulk, and feed components into the assembly plant in a sequence dictated by the production schedule. This would suggest that LSPs are well positioned to offer such services within shared-user facilities, certainly the case in many plants. However, many larger T1 suppliers are very aware of the importance of logistics as a core competency and are unwilling to relinquish it to LSPs on a large scale.

As a consequence, the market for such centres may appear more promising for LSPs than in reality.

Reference: International Freighting Weekly

Monday, July 30, 2007

World's top 100 brands worth trillion dollars, more than India's total m-cap

The top 100 global brands are together valued worth more than $1 trillion but none of them are from India-though almost all are either already present in the country or are seeking a foothold here to tap the world's second-biggest consumer force.

In the latest "World's top 100 brands" list by Interbrand, a leading international brand consultancy, and Business Week magazine, the biggest soft drinks firm Coca-Cola has retained its top position despite a fall in its brand value to $65.32 billion from $67 billion in 2006. Together the 100 brands are worth about $1.15 trillion-more than the combined market value of over 4,000 listed companies in India. The study described brand value as "the dollar value of a brand, calculated as net present value or today's value of the earnings the brand is expected to generate in the future". Internet search engine, Google emerged as the biggest gainer despite its 20th rank with a rise of over $5 billion in its brand value.

Coca-Cola is followed by Microsoft, IBM, GE, Nokia, Intel, Toyota, McDonald's, Disney and Mercedes-Benz in the top ten. Seven of the top ten brands are from the US, except for Nokia of Finland, Japan's Toyota and Mercedes-Benz of Germany.

The US is the biggest home to the top brands with as many as 52 coming from the country. Germany has grabbed the second position with just 10 brands, followed by nine from France, eight from Japan and six from the UK.

There are only four Swiss brands on the list, three from South Korea, two from Italy and one each from Sweden, Spain, Finland and Bermuda. The top four brands each have a brand value of more than $50 billion, while even the last ten have been given a value of more than $3 billion.

Even though none of the Indian brands figure in the list, the country is high on radar on most of the names mentioned in the elite list.

BusinessWeek noted that global banking giant Citigroup, ranked at 11th position, was opening thousands of branches worldwide, but still has been focusing on looking more local. "It's a strategy of selling itself as a neighbourhood bank but one with the resources of the global giant it is," the magazine quoted the bank's global consumer group chairman and CEO Ajay Banga as saying.

Reference: Financial Express

Toyota vs. Its Competititors - A Case Study

Akio Toyoda sat on stage as Toyota Motor Corp. president Katsuaki Watanabe introduced nine other executives. When Toyoda's turn came, he made a five-second bow to shareholders gathered in Toyota City, Japan, for the June 22 annual meeting. Two hours later, at a private board meeting, he was named head of Japanese sales.

The second event signalled that Akio, 51, had stepped closer to his apparent destiny as patriarch of a carmaking dynasty that his great-grandfather Sakichi funded and his grandfather Kiichiro started in 1937 by copying General Motors Corp.'s Chevrolets.

In seven decades, the Toyodas have driven their company to global dominance. They manufacture vehicles in 27 countries and regions and sell them in more than 170. They employed 299,394 workers and brought in $195.7 billion US in sales in the fiscal year ended on March 31, almost double a decade earlier. Through holdings in 14 Toyota Group suppliers, they oversaw another 126,638 people and $119.2 billion in revenue as of March 31.

In this year's first quarter, Toyota passed GM for the first time to become the world's biggest automaker by unit sales. Toyota sold 2.35 million vehicles -- 88,000 more than GM did. Toyota held on to the lead in the first half, although GM outsold it by 38,000 vehicles in the second quarter.

A dominant Toyota faces unfamiliar challenges. For most of their automaking history, the Toyodas were underdogs struggling against Detroit's juggernaut.

When the Toyodas, who started in business by manufacturing weaving looms, built their first prototype automobile in 1935, Ford Motor Co. had been making cars for three decades.

After the Second World War, demand for vehicles in Japan was so weak the Toyodas opened dry-cleaning stores. To thwart protectionist pressures in the U.S., Toyota joined with GM and began building cars there in 1984.

The next challenge for Toyota -- and the family that runs it -- is managing size.

Quality has been dented by recalls in the U.S. and Japan. Rivals are undercutting Toyota in the U.S. The company is offering an average of $5,083 in rebates, discounted financing and other incentives on its Tundra full-size pickup truck as gasoline prices rise.

GM lost its sales crown of 76 years after it stumbled over quality and cost issues -- and similar woes threaten to bedevil Akio. "What do you do when you pass a rabbit you've been chasing for 70 years?" says John Shook, a University of Michigan management instructor and a former Toyota engineer.

"Akio has a chance to articulate the first truly new vision for Toyota since Kiichiro. If he doesn't, you'd have to expect decline to set in at some point."

For now, Toyota is enjoying undisputed supremacy. It earned 51.2 per cent, or $14.2 billion, of the $27.7 billion US in net income the world's 17 largest carmakers made in the most recent annual reporting period, says Ashvin Chotai, an analyst at Global Insight Inc.

By 2013, Toyota will build 12.4 million vehicles a year compared with GM's 10.2 million, predicts Michael Robinet, a CSM Worldwide Inc. analyst.

"Toyota has staying power," says Wendy Trevisani, who bought 1.3 million Toyota shares in the 18 months ended in June for Thornburg Investment Management.

Toyota's growth engine is straining. Its shares fell 6.2 per cent to $62.98 this year through July 23 compared with a 14 per cent increase to $34.92 at GM as of July 20. Investors worry that Toyota's expansion will boost costs and damage profits, says Christian Takushi, an analyst at Swisscanto Asset Management AG, who disagrees with that assessment.

"Toyota shares are mispriced," says Takushi, whose company held one million of them in March. "They deserve to be trading at a premium."

Akio Toyoda's appointment to head Toyota's Japanese sales unit lands him in a troublesome spot. During the first half of 2007, Japan's industrywide vehicle sales, excluding minicars, fell 10.5 per cent to 1.8 million, their lowest since 1975.

Akio will introduce new models quickly and open megadealerships, predicts Yasuhiro Matsumoto, a senior analyst at Shinsei Securities Co. That may spark consolidation and weaken Akio's support among dealers left behind, he says.

"Toyota is not the kind of simple company that will change just because Akio becomes president," Matsumoto says. "He needs charisma, and right now, because he's been very low-key, he doesn't have it."

Referenced from Bloomberg

Thursday, July 26, 2007

Rest of Asia exporting more Japanese cars

Japanese automakers are scrambling to increase exports from production bases in other Asian nations to take advantage of improved worker skills and trade deals.

Asia replaced North America as the largest overseas production base for Japanese automakers in 2006, with output reaching 4.13 million vehicles. Though these vehicles were intended to meet local demand, about 400,000 were shipped to other regions. The figure is expected to reach 600,000 in 2008, more than 10% of production.

In one example, Honda Motor Co. is boosting exports from Thailand to Australia and New Zealand by 40%, or 47,000 units.

Nissan Motor Co. this fiscal year is doubling exports of its Tiida subcompact from Thailand to Australia to roughly 10,000.

Last year, Toyota Motor Corp. exported 100,000 IMVs (Innovative International Multi-purpose Vehicles) to more than 90 countries from Thailand. It will step up exports this year and continue doing so in the future.

Suzuki Motor Corp. plans to triple output capacity to 300,000 vehicles a year at its second Indian assembly plant in 2008. Half will be shipped to Europe and the Middle East. Nissan will launch a new plant in India in 2009 and export subcompact cars to Europe from there.

At a joint venture for export models in the Chinese province of Guangdong, Honda doubled output of subcompacts to 50,000 a year this past spring. The cars are bound for 10 countries, including the U.K., Germany and France. Beginning this month, they will be shipped to Poland and the Czech Republic as well.

One reason for all these exports is the improved quality of Asian-made automobiles, thanks to technology transfers and parts suppliers setting up local operations.

Trade deals are another reason. Thailand signed a free-trade agreement with Australia in 2005, shedding a 15% tariff on passenger cars. More may be on the way. The Association of Southeast Asian Nations and India have agreed with the European Union to launch trade negotiations.

In fiscal 2006, Honda earned nearly 10% of its group operating profit in Asia and Suzuki generated about 40% of its group pretax profit in India alone.

Referenced from Nikkei Weekly

Tuesday, July 24, 2007

Building of Jet Airways by Naresh Goyal - Case Study

Naresh Goyal started working in the airline industry right after college in his great uncle's marketing agency for Lebanese International Airlines. His salary was so low -- $40 per month -- that he had to sleep on the floor of his office.

But he moved up the ranks quickly, becoming a publicist for the airline and from there, moving on to other international airlines.

After a few years, he started Jet Air, a marketing organization that represented several international airlines in India. His mother sold her own jewelry to give him money to start the business.

In the early '90s, he looked into buying an airline in Scotland since there was no "national" carrier there, but his plan came to nothing. At home, though, things were changing.

From 1953 until 1992, the only airlines allowed to be based in India were owned and operated by the government. They were less than hospitable -- there were no printed schedules, and service was abominable.

But when the government opened the airline industry to private competition, Goyal jumped at the opportunity. Naresh realised that there was a huge market for good value and a high level of service in a marketplace that had never seen that before.

Goyal now runs an airline that flies from India to 50 destinations. Starting in August, Jet Airways will have a European hub in Brussels.

Goyal still remains true to his marketing roots, which were showcased in a lavish press conference recently. He might not be able to bring one of the airline's Boeing 777s into the Grand Ballroom of the Waldorf-Astoria to show off the upgraded cabins of Jet Airlines, but he did the next best thing: He brought life-size replicas of the cabins and showed off the flight attendants' newly designed mustard-colored ensembles.

Goyal markets service and comfort as the keys to his airline. For about $10,000, passengers in first class get a private suite, complete with closing doors; a full bed; a flat-screen television; and a meal that might be served at a top restaurant in any city. Business and coach offer levels of comfort too, with televisions and ergonomically designed chairs.

With globalization and India's economy opening up, Goyal is counting not only on the Indian diaspora looking to travel around the world, but businesspeople who increasingly need to go to the Indian subcontinent for work.

Referenced from Rediff and Forbes.com

Monday, July 23, 2007

Global Auto makers' report card (H1 2007)

Referenced from The Globe and Mail

General Motors Corp.: GM is now being challenged in its long-standing position as the world's top auto maker by surging Toyota. But the company vows to regain the Number One spot by dramatically reducing its costs, slashing low-profit sales to rental companies and other fleets, and revamping its product lineup as sales of trucks and sport utility vehicles slump. It is closing plants and cutting jobs to try to become competitive with Asian-based car makers, and 2007 is expected to show some improvement on 2006, when it lost $2-billion (U.S.).

Ford Motor Co.: Ford continues to lose market share in North America, as the markets for its sport utility vehicles and pickup trucks weaken. The company lost a whopping $12.7-billion (U.S.) in 2006, and it is in the process of eliminating thousands of jobs, while closing plants in Canada, the United States and Mexico. Its goal is to return to profitability by 2009 by shifting its focus to growing segments such as crossover utility vehicles and passenger cars.

DaimlerChrysler AG: The German-American auto giant signed a deal this spring to sell off about 80 per cent of its Chrysler arm to private equity firm Cerberus Capital Management LP. Chrysler has a deep cost-cutting plan and will eliminate 13,000 jobs by the end of 2009, mostly by offering buyouts to employees. While all the North American car firms are losing ground to the Japanese, Chrysler has not been hit as hard as GM and Ford. To boost sales of its key minivans, Chrysler recently dramatically cut prices of the product line in North America.

Toyota Motor Corp.: Toyota has been reporting record sales and profits, driven by dramatic growth in North American and European markets. Earlier this year, it surpassed General Motors for global sales for the first time, taking the lead in the January-to-March quarter. Toyota has a reputation for high quality, but it has also been an innovator. It is the top player in the gas-electric hybrid market with the Prius, and the company has now sold more than a million hybrids. It is also a leader in using fuel cells, which power cars from electricity generated from hydrogen.

Honda Motor Co.: Like Toyota, Honda has made huge inroads in the North American car market with double-digit sales increases. And it is also active in emerging markets such as China and India. While Honda has done well with its gas/electric hybrids, it has also hit some speed bumps; it decided earlier this year to stop production of its slow-selling hybrid Accord, which was designed for extra power rather than fuel efficiency.

Nissan Motor Co.: The Japanese auto maker saw sales decline in 2006 in its two largest markets, Japan and the United States, although the numbers have picked up sharply in North America in the past few months. Nissan has also put in place a series of cost-saving measures to try to boost profitability. It is behind Toyota and Honda in developing the hybrid market, but is putting on a big push to catch up in green technologies.

Volkswagen AG: The German company is the biggest European car maker, posting strong results in Europe and Asia, but has been less successful in North America where it has lost money for the past several years. Volkswagen has been cutting thousands of jobs to improve its competitive position, but it owns a range of strong international brands including Audi, Bentley and Skoda.

BMW AG: The German-based luxury car maker saw a dip in profits in its most recent quarter, after spending bags of money launching new models. But it predicts a turnaround in the balance of the year, and record profits for 2007. BMW is planning to boost production at its plant in the United States – its biggest market – to insulate it from exchange-rate fluctuations. The company has also turned the Mini brand into a big success by targeting aging boomers, and it also owns Rolls-Royce.

How Toyota develops exceptional people

Excerpts sourced from Rediff.com

Leading Toyota authorities Jeffrey Liker and David Meier give you the keps to growing top performers from within through a detailed preocess of preparation, traning, and follow-up. Here are Toyota's secrets to building an exceptional workforce . . .

No one seems to be sure of the exact course of events that led to the development of the Toyota Production System (TPD) as it is today, but we are sure that without highly capable people the current system would quickly disintegrate. We know that in the early development of TPD, its chief architect, Taiichi Ohno, wanted to press forward with some of this ideas and discovered that people were not ready.

When he went to work to achieve single-piece flow in a machine shop and he needed multiskilled workers, he encountered resistance and learned that he had to be patient and to think about developing people who would be able to support the methods. He could not simply order people to flow the rules (although he was known as being very forceful when necessary).

He needed people with thinking capability because of the challenges resented by the application of his new ideas. In fact, the real purpose of creating flow was to bring problems to the surface, which would force people to think about solving the problems and to help them to develop their abilities. A select few front-office experts could not possibly deal with all the situations that would surely arise as Ono pressurized the system, thereby forcing failures. He needed capable masses.

The development of capable masses requires a clear plan. It requires time and patience. Above all its takes persistence and the willingness to stick with it and to deal with the individual peculiarities and challenges of each person.

When Taiichi Ohno discovered the importance of highly capable people, he sought a method of teaching that would support his needs. He believed he had found such a tool in the Job Instruction (JI) Method taught by the American occupation forces after World War II.

It has been the primary teaching tool for all of Toyota since 1950s. Today the capabilities of Toyota employees are a hallmark of the company. We often talk to managers of other companies who view the capability of Toyota employees to be some sort of anomaly or option that is open only to Toyota.

The truth is that Toyota does like to start with good people who posses the capability to become exceptional employees. The people whom Toyota selects must have the capacity and desire to learn. Those are the only absolutes. In fact if one were to look closely at Toyota employees, one would find a broad spectrum of humanity similar to that in any other company -- with all the beauty and blemishes found anywhere.

Toyota employees bring to bear issues similar to those of other companies, such as attendance problems, resistance to change, lack of motivation, and even reluctance to accept the philosophy of TPS.

What allows Toyota to be successful in spite of these challenges is the efforts and interest in drawing out the best of the employee's abilities and initiating possible solutions (rather than a shrug and the 'What are you going to do?' attitude we hear from other companies). Perhaps Toyota has recognized the reality of human behavior and limitations, and it has created systems that minimize those limitations or take advantage of human desire.

People are carefully selected to join Toyota based on their potential and a judgment that there is a fit with the job and with Toyota's culture. They must have some general problem-solving capability and be willing to work as part of a team.

People develop specific capabilities after they are hired at Toyota. It is Toyota's expectation that it will mold the individual to fit the needs of the organization as well as support the interests of the individual. It is this mutuality of purpose that leads to more satisfied employees who are able to perform in exceptional ways.

One must not assume that Toyota is completely altruistic in its efforts to develop employees and to provide engaging activities. The objective is to provide benefits for the employees, which in turn also returns benefits to the company.

Toyota often creates situations in which there is an equal balance between reward and punishment in order to encourage the desired behavior. For example, given the critical nature of attendance on the performance of the system, a high emphasis is placed on having great attendance (perfect attendance is preferred).

On the reward side, Toyota Motor Manufacturing Kentucky (TMMK) has an annual award ceremony for all employees who achieved perfect attendance in the previous year (over 60 percent in 2005). The award ceremony includes entertainment from some top acts in the country including jay Leno, Bill Cosby, and Brooks and Dunn. In addition, each person has his or her name placed into a hat, and 14 winners are drawn, each receiving a brand new car (a mix of Camrys and Avalonds). To sweeten the pot, each team member with consecutive years of perfect attendance will have his or her name added to the hat an additional time for each year of consecutive perfect attendance.

In 2006 there were more than 400 employees who had achieved 15 consecutive years of perfect attendance (the length of the program)!

On the punishment side, repeated unexcused absences are one of the easiest ways to lose a job at TMMK. The policy is fairly strict and is weighted heavily on attendance history and also the circumstances. Consideration is given for good reasons, but repeated absences for poor reasons are sure to lead to discipline. A flat tire is not considered a 'good' reason, for example, but the effort a team member makes to reduce the time loss is in his or her favor.

If a team member has a flat tire and misses the entire day, it is not viewed favorably. And apart from the fear of being fired, sitting home while all your team associates are at the big bas hoping to win a car is its own punishment.

Wednesday, June 27, 2007

Relationship between Tatas and DaimlerChrysler

DaimlerChrysler India owns a 6.6% stake in Tata Motors and the two companies have a history of forming alliances in India.

In 1994, when DCX began its manufacturing venture for Mercedes-Benz cars in India, the two companies began a 51/49 joint venture (JV), which was then known as Telco. DCX gradually increased its holding and in 2001 it bought out the entire equity held by Tata Motors. This wholly-owned unit, however, still holds the aforementioned stake in Tata Motors.

Recently Tata Motors gave the go-ahead to Mercedes-Benz's plan to manufacture commercial vehicles in India by issuing a ”no objection certificate” for the venture. According to the Economic Times, Indian government regulations required that Tata signed the certificate before Mercedes-Benz was given the go-ahead for its Indian manufacturing plans. Mercedes-Benz's parent group, DaimlerChrysler (DCX), currently imports a relatively small number of Mercedes-Benz trucks. However, this means that the vehicles in question are subject to import tariffs, and Mercedes-Benz wants to begin production at its passenger car production facility at Pune before moving assembly to a purpose-built truck facility at Chakan, near Pune.

Source: Economic Times

CII supporting companies that are going global

The Indian companies are going global and many of them have achieved multinational status. To facilitate this process, the Confederation of Indian Industry (CII) in partnership with major Indian companies has launched an initiative -India Inc Going Global.

It is an attempt to create a platform for established and emerging Indian companies, banks, management consultants, and law firms to come together and share insights, which can be leveraged while setting up offices overseas and acquiring overseas companies.

Chairman CII Indian MNCs Committee & Chairman GVK Biosciences said "The aim is to create an ecosystem which can accelerate the creation of multinational corporations from India. The initiative aims to provide a forum for learning sharing and addressing common challenges of the globalisation journey in an actionable format."

The initiative is being led by Asian Paints, Bharat Forge, ICICI Bank, Infosys Technologies, Mahindra & Mahindra, McKinsey & Company and Prof. Tarun Khanna, Jorge Paulo Lemann Professor of the Harvard Business School.

The initiative is organised into operational entities termed as `clusters'. These clusters are based on functional areas or common challenges and opportunities. The three operational clusters are Leadership Development & Talent Management, India Advantage and Inorganic Growth.

Deputy Managing Director ICICI Bank Ltd said the global merger and acquisition business is $4 trillion and Indian companies have only tapped one per cent of the market. Therefore the initiative will help reach this market.

Source: Hindu

Tuesday, June 19, 2007

SCM Case Study - Supply Chain Model of 'Unilever Group'

The business strategy of Unilever is to achieve the highest profitability, growth, and return-on-assets. It has sold many plants and has had to put in place processes to coordinate with the third parties that own them, complicating its processes to meet its asset goals. Unilever’s operating model has three components: quality, service, and cost. While keeping its global branding, the company’s strategy is to have local supply chain for local demand to minimize complexity.

Non Production Items (NPI) Organizational Model
Unilever has recognised the importance of implementing a global supply management programme focused on reducing Non Production Items (NPI).

The NPI organisation model being implemented in both Europe and North America (which will be extended to the rest of the world) is founded on clear cross-business governance and effective executive buying. Strategic sourcing is being supported by the global rollout of e-procurement and participation in some key Exchanges, particularly in Transora, where an equity stake is held. Regional and a few global NPI cluster teams have been formed which are undertaking a rigorous methodology to deliver the strategic sourcing strategies and implementation plans required to achieve the targeted savings.

Historically the majority of NPI's have been purchased locally, although there has been an increased move towards national and in a few instances, trans-national negotiations. European and to some extent global supply markets are becoming well established enabled in many instances through e-procurement. In such areas as IT hardware and software, travel & accommodation, energy, logistics and fleet management European and in some cases global supply markets and suppliers already exist. European markets are also emerging for office facilities, telecommunications, marketing point-of-sale items and technical supplies.

The supply-chain model's primary function within Unilever is to provide the Group’s business with shared understanding of the scope of the supply-chain and its sub-processes. The model provides the common language for the different Business Groups and thereby enables the identification and implementation of synergies. Some of Unilever's most important supply-chain model applications are assessing supply-chain performance and KPI development and alignment.

Distribution and Selling
# Unilever’s products are generally sold through its sales force and through independent brokers, agents and distributors to chain, wholesale, co-operative and independent grocery accounts, food service distributors and institutions. Products are distributed through distribution centres, satellite warehouses, company operated and public storage facilities, depots and other facilities.
# Home and Personal Care in North America (HPCNA) has also developed distribution centres for third-party manufacturers where products are collected to create heavier more efficient loads to re-supply customer distribution centres.
# Home & Personal Care business in Europe (HPCE) selects hauliers on cost, performance and environmental impact.

E-Procurement
Unilever meets two of the key corporate strategic thrusts: World Class Supply Chain and Simplification by implementing NPI strategic sourcing and e-procurement enablement. These are two of the six thrusts for implementation of world-class supply management:
# Implement executive buying
# Attract, develop and retain world-class buyers
# Professionalise NPI sourcing
# Enable e-procurement globally
# Accelerate and leverage simplification
# Drive information and measurement

Aggregation of demand and access to new suppliers through real time partnership has enabled Unilever to improve efficiencies of the extended supply chain. Workflow automation has helped in simplification of the internal processes, which has created scale for Unilever to leverage. For Unilever e-procurement represents the opportunity for sustaining the benefits gained from strategic sourcing through information, compliance and business process simplification. There are four ways of defining the benefits of e-procurement:
# A structural enabler for re-engineering the NPI procurement process enabling further benefits to be gained through strategic sourcing, business simplification, visibility of total spend and effective integration routes both internally, e.g. ERP, and externally.
# The means for conducting electronic business upstream using lowest cost links, i.e. cXML.
# A business model prompting re-evaluation of the mechanisms for connecting customers, enterprises and suppliers (incl. Exchanges and Marketplaces)
# A single front-end interface both externally to suppliers and internally for ERP and other areas of integration

Strategically e-procurement complements Unilever's overall e-initiatives. Learning from these and the strategic sourcing expertise gained during implementation, has improved business ability for the future e-procurement of both NPI and direct materials. Workflow automation and simplification to global sourcing processes has resulted in increased productivity and reduction of transaction costs. Data made available can then be applied to harmonise items purchased, rationalise needs with suppliers and monitor and reduce usage, thus further increasing Unilever's buying opportunities.

Exports
Unilever sells its products in nearly all countries throughout the world and manufacture in many of them. The company exports a wide range of products to countries where it does not makes them. For example, inside the European Union, Unilever makes many of its products in only a few member countries, for sale in all of them. The chosen manufacturing conﬁguration is generally determined by an optimized regional sourcing strategy, which takes account of requirements for innovation, quality, service, cost and flexibility.

Global Supply Chain Management Solutions Providers
In an effort to streamline its daily operations, Unilever has partnered with several technology and logistics providers on a worldwide basis. Some of the major providers are:

Technology Providers

Some other technology providers are: -
# Manugistics Group Inc.
# SSA Global
# Syncra Systems Inc.
# Vastera Inc.

Logistics Providers

SCM Technologies in Unilever’s Business Model
Unilever's overall technology vision includes a strong push from client-server to thin-client architecture, Web technologies that bring the company closer to its customers, and business analytics to make management information easier to access, according to Rick Ballou, IT business-area director for Unilever Home and Personal Care North America.

With a market capitalization of $28 billion, the consumer-products giant reported that its recent IT achievements include the rollout of business-intelligence software from Hyperion, and "SAP ERP wall-to-wall" as a global standard. Unilever also has seen significant cost savings from its investment in Ariba's sourcing technology, which has resulted in a reduction of the office-supply purchasing budget by millions of dollars, and a consolidation of data centers from 18 to five; eventually, the number will fall to three.

A cross-functional global committee already is working on the shift from desktop client-server to portal technology. On the B2B front, in addition to its RFID efforts, Unilever is participating in an industry-wide effort to standardize data elements throughout the supply chain through UCCNet. Unilever has also expressed their continued interest in CRM.

Unilever collaborates on statistical and market promotion forecasts for key products with a few large customers, using a collaborative system from Waltham, Mass.-based Syncra Systems Inc.

The organization as whole had multiple ERP and CRM systems from several vendors, and 34 custom-built data warehouses. Unilever currently runs 100 separate, complete SAP enterprise resource-planning systems.

Similar on these lines, some of the major SCM technologies and IT solutions implemented in the business model of The Unilever Group are discussed below: -

ISIS Supply Management Information System: ISIS is Unilever’s integrated supply management information system. It helps its local, regional and global supply managers make appropriate sourcing decisions, allowing them to collate and analyse information quickly and easily. The system enables its managers to negotiate with suppliers in a transparent and efficient way, benefiting both parties. For more details on this, please visit https://isis-unilever.com/Sourcing.

E-procurement Solutions from Ariba: Unilever selected the Ariba Buyer software for e-procurement following a rigorous selection process and initial pilot in North America. Although initial success has been achieved Unilever believes that these are still early days and that the return of investment has still to be proven. While e-procurement is an inevitability for future supply chain optimisation the supply market, particularly in Europe, is still suffering from under-development. There is an emerging recognition that e-Procurement can affect total supply chain operation rather than just transactional activity. Until recently few have taken action to implement or sponsor the necessary changes. Encouragingly though, Unilever believes that this position is changing and unquestionably e-Procurement provides a catalyst for positive improvement in supply management profile.

Enterprise-Scale Data Warehouse and Business Intelligence Solutions: In order to gain a clear view of business performance across its 34 companies in 19 countries, Unilever Latin America has embarked upon an enterprise-scale data warehouse and business intelligence project called Sinfonia.

At the heart of Sinfonia, KALIDO® enterprise data warehouse creation and management software (KALIDO) provides a solution that will grow to encompass one of the largest databases in the world by 2007. KALIDO delivers an aggregated view of data across Unilever Latin America at high speed throughout constant business change such as acquisitions and market consolidation. KALIDO is now making it possible for Unilever Latin America (Unilever LA) to build and manage a fully functional, adaptive data warehouse throughout its lifecycle while simultaneously rolling out an underlying regional SAP system in a 4 to 5 year sister project called Harmonia.

The flexibility of KALIDO is enabling Unilever LA to maintain business continuity as the Sinfonia and Harmonia projects continue to roll out. The KALIDO data warehouse will grow both in geographic coverage and in scope, and is expected to reach 12 TB in size. Throughout this period of growth it will deliver consistent business information, taking increasing volumes of data from the ongoing SAP implementation.

Unilever LA is converging processes, systems and information to enable a truly regional approach to business. Using the KALIDO enterprise data warehousing solution, the organization is successfully delivering a large-scale enterprise data warehouse, on time and within budget, while simultaneously rolling out a region-wide SAP system.

The new information architecture Sinfonia, powered by KALIDO, will deliver high-quality data to 4,000 users by 8 am every day across five time zones. The solution will enable better understanding of regional supply chain processes, brands, customers and suppliers, and will allow Unilever to respond rapidly to new opportunities, even against a backdrop of constant internal and external business change.

Finally, KALIDO will facilitate strategic planning and drive improved decision-making, by delivering tailored information at high speed to key business users, enabling Unilever LA to realize substantial cost savings and improved ability to capitalize on business opportunities.

Supply Chain Information Systems: Using a variety of information systems and several other supply chain management technologies, Unilever aims to enhance its supply chain business model. The following diagram describes the company’s supply chain system vision: -

Discussed below are the various types of information systems used within the business model of The Unilever Group with their specific usage: -
# R&D System R&D System (LIMS): Used for formula development
# Specifications Systems: Used for Packaging, Raw Material, Formula, Master BOM, Finished Products and Process Specifications
# Manufacturing Planning Systems: Used for MRP, Production Orders, Purchase Orders, Standard Costs, RM/Pack/WIP Inventory, Financial Transactions, Material Masters and Production Reporting
# Planning Systems: Used for Demand Planning (DP), Demand Req Planning (DRP), Constrained Prod Planning (CPP), VMI and Finite Scheduling
# MFG Execution Systems (Various): Used for Finished Goods Production, Compounding/Batching, Quality/Lab Systems and Plant Maint Systems
# Order to Cash Systems: Used for Order Entry/Management, Terms of Sale, Deduction Tracking, Stock Allocation and Invoicing
# Finished Goods Management Systems: Used for Shipping, FG Warehouse, Transportation, Finished Goods Production (PIN) and Traceability

Supply Chain Strategies of Unilever N.V
Unilever’s logistics operations present perhaps the biggest opportunity to streamline its supply chain and boost the company’s ability to achieve its lofty growth goals. The company is in the process of consolidating its nearly 30 warehouses down to five massive distribution centers capable of shipping customer orders within a day’s time.

Much of that consolidation is a recognition that retailers are adopting zero-inventory policies, which require an optimal use of flow-through and cross docking in the warehouses. To increase asset utilization, lower inventories and improve service, Unilever adopted collaborative planning, forecasting and replenishment (CPFR) relationships with some retail customers. Thanks to those CPFR efforts, Unilever has been able to achieve 10% inventory reduction, 10% forecast accuracy improvement and 5% increase in sales due to better on-the-shelf availability.

According to Fred Berkheimer, vice president of logistics for Unilever Home and Personal Care, since orders are often impacted by factors that cannot be projected, collaboration between manufacturer and retailer is necessary to increase forecast accuracy. “High accuracy in replenishment can only be achieved through order forecast collaboration and extended supply chain visibility,” says Berkheimer. Today, Unilever’s logistics department is experiencing include improved relationships with retailers, better planning, improved on-time performance and more efficiency in handling promotions.

Path to Growth

In 2000, the company launched a five-year Path to Growth initiative to drop the total number of brands down to 400 by the end of 2004, achieve 5%-6% annual sales growth and a 16% increase in operating margins.

Three years ago, the company was running hundreds of manufacturing sites under an umbrella of 300 operating companies. Path to Growth mandates a reduction in sites to 150 locations.

Unilever's supply savings programme is one of the cornerstones within the Path to Growth Strategy towards the implementation of a world-class supply chain. Through Path to Growth, Unilever’s five-year strategic plan announced in February 2000, the company has greatly strengthened its business.

Unilever's Path to Growth Strategy
=> Reconnect with the consumer - to anticipate the future
=> Focus the brand portfolio - reflecting consumer appeal and growth potential
=> Pioneer new channels - to be in the right place at the right time
=> Develop a world-class supply chain - simplifying sourcing, manufacture, and marketing
=> Simplify the business - reducing complexity

Significant progress has been made towards the achievement of its strategic ambitions with a much more focused brand portfolio and faster growth in the leading brands, while the major reductions in costs and streamlining the asset base have resulted in sharply higher margins and improved capital efficiency.

Under the so-called "Path to Growth" strategy, Unilever first reorganized into two units—foods and nonfoods—in each major geographic area. Path to Growth also calls for Unilever, by 2004, to cut its collection of brands to 400, from a high of 1,600 two years ago. That core of 400 strong sellers—which includes SlimFast, Dove, Ben & Jerry's ice cream and Lipton tea—is expected to make up 90% to 95% of Unilever's total sales, up from 84% today. So far, 700 slow-moving brands, plus an incongruous industrial dry cleaning business, have been sold. Five hundred more are still to be divested, including a group of oils and spreads put up for sale last month.

Over the period 2000 – 2003, Unilever has generated over €16 billion of un-geared free cash flow. The company has also successfully integrated Bestfoods, one of the largest acquisitions ever made in the industry. With one more year to go under Path to Growth this creates a strong basis for the next phase of company’s development.

"Chipping of "Goods" Initiative – RFID
Unilever's Supply Chain Innovation team wants to understand how better tracking of products will affect manufacturing plants, distribution centers and stores. Unilever anticipates that manufacturing plants will have to reduce the length of product runs and make other refinements to react more quickly to changes in demand. And retailers will have to provide more timely information to suppliers.

In continuation to this strategy, on July 29, 2002, Unilever launched its third phase of a supply chain-tracking project under Britain's "Chipping of "Goods" initiative. The company planned to put RFID tags on 30,000 six-packs of Lynx deodorant and monitor them as they move from a manufacturing plant to three Safeway stores. As part of the initiative, Unilever's U.K. home and personal care products company, Lever Fabergé, is putting RFID tags on six-packs of Lynx deodorant at its factory in Leeds. After the individual cans of deodorant are made, they are vacuum-sealed and a small white label with an RFID tag in it is affixed to the package.

Sources: Company Reports, Press releases, M-a-p.co.uk, Findarticles.com, Sap.com, Logisticstoday.com, Kalido, “Unilever's NPI initiative”, By Tim Cooper-Jones, Published at M-a-p.co.uk, IEE (www.iee.org/OnComms/PN/controlauto/Unilever.pdf) and Rfidjournal.com

Thursday, June 14, 2007

Human Capital Trends in Indian Automotive Sector

The success of Indian enterprise has encouraged foreign companies to also set up their base in India. Thanks to many Korean, Japanese, European and US auto firms for investing in India and for linking their prosperity to India’s future. All these firms, Indian and foreign, are contributing to making India an automotive and industrial powerhouse, making us a global manufacturing hub.

Amidst this phenomenal growth, there are numerous trends and developments being experienced across the human capital / resources function within the Indian automotive sector. Discussed below are excerpts of some of the available articles and editorials on this topic.

Trend 1: Reverse brain drain for Auto R&D

According to Booz Allen Hamilton, R&D spending in India has grown by 17% in 2006 whereas, comparative figures in US and Europe is only 5.2% and 2.3% respectively. With globalization, Indian corporate segment experience more and more challenges in market competitiveness and product innovation. Indian strategists are focusing on making their R&D investments judicially to get higher research output in lesser costs. Corporate India seems to have realized that product innovation is the key to survival and may serve the best competitive strategy for sustenance.

According to the Society of Indian Automobile Manufacturers, there are already over 250 Indian expatriates who have returned to work on R&D in domestic automobile companies Mahindra & Mahindra, Ashok Leyland, Tata Motors and Hindustan Motors. SIAM predicts that their numbers will double in two years.

With investments of over Rs 100,000 crore lined up in the Indian automobile industry, and European and US car majors making an aggressive push into India, Indian car companies have begun to understand the significance of R&D. Investments are small -- R&D budgets are just 1 to 2 per cent of domestic car makers' turnover -- but are expected to grow rapidly. "The return of expatriates is helping the Indian companies to overcome their human resource challenge in the field of research. The significant development of the automotive industry is now a magnetic proposition for qualified people to return and harness their knowledge," said Dilip Chenoy, director general, SIAM.

SIAM has set up a society in the US known as the Association of Scientists of Indian Origin that taps Indians working in the automobile majors there and provides access to domestic firms to identify and recruit talent in engineering and R&D. There are numerous examples.
# Arvind S Bharatwaj, for instance, took a 50 per cent cut in his salary in General Motors in the US to return to India and now heads the advanced engineering unit of Chennai-based Ashok Leyland. He has been blending the use of electronics and engineering (infotronics) in commercial vehicles to come out with new high-tech products for the company.
# Pawan Goenka, also returned after a 14-year stint with General Motors' global research and development centre in Detroit. He now heads the automotive division in Mahindra and has been the force behind the introduction of Scorpio, the most successful SUV ever launched in India. He has also prepared the blueprint to sell the Indian SUV in the US.
# V Sumantran, who was closely associated with GM's futuristic EV1 electric cars project and then played a key role in Tata Motors' small car before he quit, now advises Ashok Leyland on developing battery-operated hybrid trucks and buses.
# Raja Pant left the design development facility of Ford Motor Company in the US and is now with the body fabrication business of Tata Motors.
# Sudhir Rao, who was with General Motors engine development operations in Detroit, now works with Avtec Engines, a unit of Hindustan Motors, which supplies engines to Mitsubishi Motors and General Motors India.

Source: Business World

MY SAY
=> Although there are only few examples, more and more Indian R&D executives will come back to India.
=> As several Auto biggies have already started setting up their R&D centers in various locations of India, availability of these brains will consolidate & position India as the next R&D hub.
=> Cars in the near future will have a touch of Indian-ness in their designs.
=> After BPOs and KPOs in ITES Sector, manufacturing sector and more specifically its R&D function is going be the next BIG THING in India.

Trend 2: Auto sector in south Indian state to create 500,000 jobs

The automobile industry in Tamil Nadu in south India will be able to generate as many as 500,000 fresh jobs in the next 10 years and emerge as a 20 billion U.S. dollars industry, a study by an Indian industry chamber said Monday. The study by the Confederation of Indian Industry (CII) titled "Mapping of Human Resource Skills in Tamil Nadu - 2015" said by 2015, the auto sector will employ 580,000 people.

The southern Indian state is already home to major auto companies such as Ford, Hyundai, Ashok Leyland and components firms that employ about 80,000 people. Tamil Nadu has 30 percent share of the auto components market and 17-20 percent share of the vehicle industry in India, the CII study says, adding the sector has the potential for a six-to-seven fold increase in output.

It estimates the size of the industry in Tamil Nadu will be 15 billion U.S. dollars to 20 billion U.S. dollars by 2015. The study observes that the recent trends in the auto industry include the adoption of lean manufacturing practices, quality, shift from assemblers to contract manufacturers and techno- commercial purchases. "In product development, the auto industry needs project management and problem solving skills to identify root causes for design issues," the study says.

Source: CII

MY SAY
=> Tamil Nadu would become the Detroit of India
=> Most of the manufacturing and R&D units from Auto sector would be concentrated in this region.
=> Besides, Tamil Nadu, Maharastra is also seeing such investments and could emerge as the next preferred destination for Auto sector.

Trend 3: Stats on Market Size and HR Challenges in Indian Automobile Sector

# Growth Trend
o Auto sector could grow to $145 b by 2016
o The domestic automobile market has been growing at 14.2 per cent CAGR over the past 4 years (2000-01 to 2004-05), While the auto components market has been growing at 19.2 per cent CAGR (2000-01 to 2003-04).
o The automotive sector also offers significant employment opportunities. It employs 0.45 million people directly and around 10 million people indirectly

# HR Challenges
o Insufficient skills in certain areas, including interpersonal communication, computer literacy, and product knowledge
o Insufficient training
o Insufficient numbers of high-performance customer-facing personnel
o Difficulty securing the best talent to sales and management positions
o A low awareness of career opportunities and paths within the industry, and
o A nagging image problem for the industry exacerbating these issues
o Rajeev Dubey, president of HR and corporate services for Mahindra & Mahindra Ltd., one of the 10 largest Indian business conglomerates, says that with the exception of the relatively few managers with multinational experience, India’s homegrown managers are poorly prepared to cope with global challenges arising from mergers and acquisitions, joint ventures, and entering new markets.
o Of 50 companies in the automotive supply sector, Gaurav Lahiri, operations manager at the Hay Group India in Gurgaon, estimates that only three or four are trying out cutting-edge HR practices. “It’s a case of overpromise and no deliver,” he says. “From an intellectual standpoint everyone nods their head and says strategic HR is great. Whether leaders are engaging and motivating people on the ground is a question. We seldom come across a CEO client that loves the HR managers: They’re constantly complaining about how the HR guys are clueless on the business practices.”

MY SAY
=> I strongly feel that there is very low focus on R&D in Indian companies and thats the reason why India still lacks the ability to compete on designs and technology aspects.
=> Although we have proved to the world that we can produce the best brains yet our managers lack the experience to handle global challenges arising from M&As, JVs and globalization. However, due to the increasing investment from global auto companies in India more and more best practices would be siphoned to India that will gradually give the required exposure to Indian executives. Although it would take some time but I strongly feel that in the next 10-15 years we will see some dynamic leaders in the likes of Carlos Ghosn and Katsuaki Watanabe...

Trend 4: India the latest stop for young executives

# India has become more attractive to executives seeking a chance to test their mettle in a growing market. Some 300 new foreign executives are forecast to come to India this year, according to Kris Lakshmikanth of The Head Hunters.

# According to Evalueserve, India will need more than 100,000 expatriates by 2010. In 2002, the government reported that 13,000 expats were working in the country. Yet the need goes beyond language skills to the highest levels of management. "In India, most business is at the start-up stage, so we need managerial talent," says Sudhakar Balakrishnan, director of Adecco Consulting in Bangalore.

# Indians themselves have filled some of this shortfall, as more are staying here rather than venturing abroad - reversing decades of brain-drain. The need for foreigners remains, however, whether it is for foreign companies establishing their presence in India or for Indian companies wanting experienced Western executives.

MY SAY
=> It would eventually lead to more interaction and exposure for Indian executives.
=> Indirectly this will help in the transition of best practices to Indian corporate world.
=> More and more new executives or rather leaders will emerge from India gradually.

Trend 5: Interesting development in Mahindra & Mahindra – Search process for HR

CEOs in India went outside the HR pipeline to find executives with business acumen who could add a strategic HR perspective. For example, when the leadership team at Mahindra & Mahindra wanted strong HR leadership, they hired Yale University-educated Dubey as president of HR and corporate services. In a career path not usually seen in the United States, Dubey previously had been a CEO for two companies in the Tata Group, India’s largest private conglomerate.

“I had never been part of the HR function, but I dealt with a lot of HR issues when I was a CEO,” Dubey says. Now, he leads 150 HR professionals at Mahindra & Mahindra. “We do a lot of work that’s strategic to the success of our businesses: talent management, creating synergy, creating a culture of integration, mapping, succession planning and developing a global mind-set.”

MY SAY
=> I always feel that HRs in India lack the knowledge on actual business of their company. They are always focussed on the functions, operations and designations and totally ignore the actual requirement of competencies. This leads to the hiring of candidates who eventually prove that they were wrong hires in most of the cases.
=> This practice of picking up a candidate who was earlier a CEO is a very logical and intelligent move of M&A.
=> This offers a very logical approach of hiring i.e. depending on the main corporate strategy of the company, people in the HR function should be chosen from relevant background. This will insure that HR executives will have a clear and complete understanding of not only the human capital requirements but also the competencies required to execute corporate vision.

Trend 6: Indian tech drives autoworld

From infra-red vision in headlamps to in-car Bluetooth applications, Big Auto is turning to India for top-of-the-line technology.

Auto MNCs have been wiring back-office functions to India including supply chain management and procurement functions for their global operations. What’s new is the tech edge in the latest round of sourcing. A host of OEMs due for an India debut are looking at both component and IT sourcing as part of their regional strategy. And car makers like General Motors, Nissan, DaimlerChrysler, BMW and Ford already outsource a host of back-office functions for their global requirements.

Wipro Technologies, Satyam Computer Systems, Genpact are some of the vendors involved in auto outsourcing. Says NS Bala, senior vice-president for manufacturing solutions, Wipro Technologies, “Auto companies are focussing on managing their brands. Applications like Bluetooth in car, remote diagnostics services and new systems that seek to improve safety on roads are being outsourced to India.” Wipro Technologies has eight automobile clients and a 1,000-people team developing applications for global car majors.

Genpact’s BPO has around 1,000 people engaged in finance, accounts payable, analytics, supply chain management and procurement tasks for global auto makers.

Source: Economic Times

MY SAY
=> Its too early to pin our hopes and start projecting on this market in India due to the presence of some of the best technology companies worldwide. It would be really a tough competition for all these companies to earn a share in this market.
=> As India has an edge due to cost effectiveness and availibility of talented yet cheap labour. I foresee these companies to handle all those aspects which would be backend tools or can be outsourced.

India Inc. facing an attrition rate of 20%

Increasing opportunities and employee aspirations induced by robust economic growth have led to an unhealthy attrition rate, exceeding 20 per cent for India Inc, with services sector facing the maximum brunt, an ASSOCHAM study shows.

An ASSOCHAM Business Barometer Survey on 'Attrition Problem in a Growing Economy' has revealed that attrition rate at 40 per cent is alarming in the services sector, while the same in manufacturing was 20 per cent.

Maximum attrition is taking place among employees in the age group of 26-30 years, while those with an experience of 2-4 years are most vulnerable to job-hopping, the survey covering 160 HR heads noted.

Interestingly, women employees were less prone to job changing compared to men.

"For every 10 males jumping the fence there were only two females crossing over. Even if women face the pressure of balancing the management of their families and workplace, they tend to be more stable than their male colleagues," 52 per cent of HR managers surveyed said.

With India joining the globalised world of business, the movement of workforce across national boundaries has also added to the rising level of employee turnover, according to 72 per cent of the ABB respondents.

The immediate gains in salary package was found to be responsible for job change in 61 per cent of the cases, growth potential was also rated quite high as an important reason.

Source: ASSOCHAM

Auction websites changing traditional M&A processes in India & the World

Investment bankers have found a new rival in executing merger and acquisition deals in the form of the Internet, which allows sale or purchase of a company at the the click of a mouse.

Marking a significant coming-of-age for the e-commerce industry, online auction platforms like eBay are no more just about selling or buying consumer goods. In fact, entire companies are being sold and acquired on these websites in a simpler, faster and cheaper way than the traditional methods involving a plethora of investment bankers and advisors.

The trend is catching up fast in India as well after a number of successful deals in the US and other countries.

A Lucknow-based telecom firm is seeking bids for 25% stake in the company on eBay India website, a retail outlet in Kharagpur is on sale for a minimum of Rs18 lakh, while another electric vehicle manufactruing firm from the country is also soliciting potential buyers on the website.

Besides, an operational job portal Alphacareer.com, based in Bangalore, has also listed itself for sale on the eBay USA website and is seeking buyers from across the world.

Another e-commerce website focussed on sale and purchase of a business, Biz Buy Sell, has a US-based company seeking buyer for its fully-staffed Indian software developement subsidiary in Mumbai at a base price of $500,000.

There are several other such examples on some of these auction sites.

Inference
Market experts believe prospects for such deals in India should improve further, given the growing number of Internet users and increasing awareness about such websites.

According to web traffic tracking firm comScore, India is already one of the ten most populous countries in terms of Internet users and is growing at a sharp rate.

Source: PTI

Capital flows can hurt India competitiveness - RBI

Large capital inflows could result in overvaluation of India's currency and erode competitiveness of traditional and goods sectors in the long term, deputy governor of the Reserve Bank of India (RBI) said on Thursday.

Rakesh Mohan, in a paper for a Bank of France seminar in Paris posted on the RBI's Web site www.rbi.org.in, said large remittances and a sustained spurt in software exports were complicating exchange rate management. "(These) coupled with capital inflows have the potential for possible overvaluation of the currency and the resultant erosion of long-term competitiveness of other traditional and goods sectors," Mohan said.

India is part of the way through a three-phase, five-year plan towards greater capital account convertibility. Mohan said opening up the capital account meant market participants needed to be better able to absorb greater volatility and shocks.

"In the context of progress towards further capital account convertibility, the market participants are going to be faced with increased risks on multiple accounts: volatility in capital flows, volatility in asset prices, increased contagion and state of ability of legacy institutions in managing risks."

Source: Reuters

Prospects of Semiconductor Production in India

According to Gartner, semiconductor manufacturing in India is currently limited, and although there are no operational wafer fab plants in the country right now, five fab plants have been proposed, with approved ones targeted to go live between 2009 and 2010.

Philip Koh, Gartner's research vice president of semiconductor for Asia-Pacific acknowledged the "possibility" that electronics manufacturing services providers in Southeast Asia may move some of the manufacturing facilities to India, but noted that OEM (original equipment manufacturer) investments moving out of the region are not significant right now.

In recent years, electronics manufacturing services providers have set up plants in India, and equipment manufacturers such as Samsung and Nokia are also establishing their mobile-phone manufacturing plants in India, he noted.

Ganesh Ramamoorthy, Gartner's principal research analyst based in Mumbai, India, said that rising salaries and disposable income levels are driving up India's consumption of hi-tech products, such as PMPs, DVD players and notebooks. India's current semiconductor consumption is estimated at about $2.7bn (£1.4bn).

To cater to the rapidly growing domestic market, OEMs including Nokia and Motorola are building manufacturing plants in India, Ramamoorthy said.

He added that the initial focus will be to cater to the local market for up to three years, with a strong possibility of ramping up production to cater to export markets in neighbouring countries such as United Arab Emirates, Sri Lanka, Pakistan and Bangladesh by as early as 2008.

Exports to these countries currently account for less than five percent of India's total production, but that is likely to change, according to Gartner.

Ramamoorthy said that by 2011, between 10 percent and 20 percent of mobile-phone production, for example, could be for export. For instance, if 100 million phones are going to be produced in India by then, 20 percent will be for the export market.

India's equipment production in 2006 amounted to about US$14bn (£7bn), and is expected to increase to US$30bn (£15bn) by 2011, said Gartner.

Source: Gartner

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