Budgets Implications on FMCG Sector

The Budget gives more focus on the agricultural/farm sector that will boost the rural income thus providing better growth prospects to the FMCG companies. With 12.2% of the world population living in the villages of India, the Indian rural FMCG market is something no one can overlook. Better infrastructure facilities will improve their supply chain. Also, with rising income and growing consumerism, FMCG sectors are likely to benefit. Growth potential for all the FMCG companies is huge as the per capita consumption of almost all products in the country is amongst the lowest in the world. Further, if these companies can change consumer's mindset and offer new generation products, they would be able to generate higher growth in the future.

Points to remember

• Farm sector has been given the top priority. Agriculture investments to go up to 2% of GDP
• Duty on edible oil has been reduced
• Excise duty exempted for all food mixes and biscuits
• Custom duty on Sunflower oil (crude and refined) reduced by 15 per cent while exempted from additional CV duty of 4 per cent Customs duty on food processing machinery and their parts is being reduced from 7.5% to 5%
• Excise duty has been fully exempted on biscuits of per kilogram
• Excise duty on food mixes, including instant food mixes, has been reduced from 16% or 8% to Nil
• Free samples and displays are exempt from the purview of FBT
• Footwear - Excise duty on parts of footwear reduced from 16% to 8%
• Venture capital investing in dairy industry will get a pass through status
• Better rural infrastructure development to be an area of focus
• Increase in dividend distribution tax from 12.5% to 15%
• 1% higher education cess to charged
• The dividend distribution tax on dividends paid by money market mutual funds and liquid mutual funds increased to 25 % for all investors
• No implementation of value-added tax (VAT) on cigarettes
• Specific excise duty on cigarettes increased by about 5%

CHANGES EXPECTED

• The focus in agriculture will benefit rural income that in turn will help FMCG companies Thrust on Increased investment in agricultural activities and rural infrastructure would be positive for the sector
• Increase in spending towards upliftment of rural populace to lead to increased demand for durables in the long term
• CST reduction expected to lower manufacturing costs of FMCG players
• Reduction of excise on food mixes is beneficial to ITC, as this segment is a new growth area
• FMCG companies spend a lot of money on advertising and brand building. Exclusion of samples and displays from FBT will help them in promoting their products
• Better infrastructure will help better access and more distribution network to the FMCG companies. It will help them improve the supply chain
• Companies have huge investments in the liquid funds, the higher tax on dividend distribution will reduce their other income. The impact of higher tax (cess) on the industry is likely to lower net margins, albeit marginally. Also all the FMCG companies will benefit from the infrastructure development funds that will boost to rural income

HLL, Marico, Dabur and ITC will benefit out of it.

1. Britannia and ITC are likely to benefit due to reduction in excise on biscuits
2. ITC will also benefit from the reduction of excise duty on instant mixes
3. Duty reduction on edible is a positive for companies like Marico
4. Positive for footwear companies like Bata, Liberty Shoes and Mirza International

Source: Indian Budget 2007-08 - Part I - Fast Moving Consumer Goods (FMCG)

Thanks Mr. Finance Minister for this hygienic budget for FMCG Sector !!

Nitin Kochhar (http://www.fmcgmarketers.com/; www.fmcgmarketers.blogspot.com)

SuperMarket

Supermarket is a departmentalized self service store offering a wide variety of food and household merchandise.It is larger in size and has a wider selection than a simple grocery store. But it is smaller than a hypermarket.
Supermarket consist mainly meat produce,dairy and baked goods, packaged goods as well as some household goods.
It usually offers products at low price by reducing their margins. Certain products such as bread, milk, sugar are often sold as loss leaders, that is with negative margins.
At present many Supermarket chains are trying to reduce labour costs futher by shifting to self service, check out machines, where a group of four or five machines is supervised by a single assistant.

Resource based view for competing in International market

The companies in 1990’s and onwards have started rejecting the idea of competing on the basis of operational efficiency and technological improvements. They adopted rather, a resource based view, which combined the internal perspectives of the company with the external perspectives that is, the market conditions.
v This method derives its strength in the fact that, it has an ability to explain the reasons for certain companies’ profitability, the proper usage of core competence and how to develop diversification strategies.
v No two companies can have the same set of valuable resources because each company has a unique set of experiences, skills and assets and the organizational culture built over time. And resources combine all physical as well as intangible assets of the company and also the organizational capability embedded in company’s routines, processes and cultures. Based on these resources, a company must define its strategies so that the resources can be deployed in the best possible way. Hence the resources should be a competitively distinct.
v The resources are considered valuable on the following criteria:
1. Inimitability of the resources: how hard it is to copy by the competitors. It is attained by the two things:
Ø Physical appearance
Ø Path dependence as to how the product is arrived at
Ø Causal ambiguity as to why the company achieved success in its ventures
Ø Economic constraints
2. The durability of the resources: how quickly the resources depreciate.
The company must try to acquire a resource which has sustainability over time to help it gain a competitive advantage. The early mover advantage can be surpassed by a better technology if the continuous innovation is not made.

3. The Appropriability: capturing the value created by the resource in maximum proportion. Hence the company must try to build up the resources which help gain most profitability for the company.
4. The Substitutability: how easily can a unique resource be trumped by a different resource? If a resource can be easily replaced by its competitors’ alternative, then the resource is not quite helpful for gaining competitive advantage.
5. Competitive superiority: determine which resource is better. This is difficult as identifying resource as a major criterion to bring about profitability and such decision must be based on thorough research.
v Strategic implications: The companies must build the strategies on the resources which pass all five tests for valuable resources. Since the competitors are also trying to adopt the same technique, one must ensure that the value created does not erode easily. For that, the company should go for three steps:
1. Invest in resources and make them as valuable as possible.
2. Upgrade resources to avoid substitution and imitation over a long period.
3. Leverage the resources into all the markets where they can contribute to the competitive advantage or in the new market which can lead to corporate resources.
4. The strategic errors during diversification made by the companies are:
A. The replication of the success into new market becomes impossible due to causal ambiguity and path dependence.
B. The overestimation of profitability in attractive industries though it requires huge capital investment. If not so, other entry barriers are quite prominent.
C. Leveraging the generic resources to gain competitive advantage in a market with a specific competitive dynamics.

Hence, this can be said that a company which succeeds in blending two different insights of capabilities and competition represents an enduring logic which could sustain over a longer period of time in a dynamic market.

Retail

Retail comes from the French word Retaillier which refers to cutting off, clip and divide and sale in smal quantity.Retailing consist of the sale of the goods or merchandise,from a fixed location such as a department store in small or individual lots for direct consumption by the purchaser.
A retailer buys goods or products in large quantity from manufactures either directly or through wholesalers and sells smaller quantities to the end user.
Retailers are the end point of the supply. Pricing techniques used by the most retailers is cost plus pricing. this involves adding a markup amount to the retailer cost. e.g Like a retail company purchase a colgate for Rs10 from Colgate Company and sells at Rs13 in outlet, so Rs3 is the markup amount.
Second technique used by the retailers is suggested retail pricing. It involves charging the amount suggested by the manufacturer and usually printed on the product.

TPS( Toyota Production System)

Introduction

The credit of developing Toyota Production System goes to Taichi Ohno, former VP, Toyota Motor Corp and Shingo Shigo. Shingo was a thinker, who had the basic framework in his mind, and Ohno was implementer, who actually executed Shingo’s ideas. The system was developed and promoted by them while working for Toyota Motor Corporation. It is being adopted by many Japanese companies in the aftermath of 1973 oil shock. Though the main purpose of the system is to reduce costs, the system also helps increase the capital turnover ratio and improves the productivity of a company as a whole.

Even during period of slow growth, the TPS could make a profit by decreasing costs in unique manner that is, by completely eliminating excessive inventory or workforce. It would probably not be overstating our case to say that is another revolutionary production system. It follows the Taylor system (scientific management) and the Ford system (mass assembly line).


Basic Idea and Framework

Its major focus is on completely eliminating unnecessary elements of production system, in order to reduce costs and to increase productivity.

However cost reduction is the system’s major goal, but the other three it is ought to satisfy are :

• Quantity control- this arms the system to effectively deal with the fluctuations in demand.
• Quality Assurance- this ensures that each process supplies only good part to next process
• Respect for humanity- the most important element in the system is human being. Happy Worker = Happy Machine = Happy Factory = Happy Company = Increased Profit.

As can be seen in the diagram, the major pillars of this system are JIT and Autonomation. The other two key concepts to the TPS include Flexible Workforce that is multiskilled workforce, and Creative thinking or inventive ideas or capitalizing of worker suggestions.

To realize these four concepts, Toyota has established the following systems and methods:

• Kanban system, which act as enabler for JIT
• Production smoothing method to adapt to demand changes
• Reducing Set up time in order to reduce the production lead time
• Standardization of operations to attain line balancing.
• Machine Layout and the multi-function worker for the flexible workforce concept
• Small group improvement activities to reduce the costs and improve the worker’s morale
• Visual control system to achieve Autonomation concept
• Functional Managements system to promote company wide quality control.

I have myself worked on the few concepts like Kanban, Set up Time reduction, Standardization of operations, Small group improvement activities, Machine Layout, small lot production. I will discuss all the elements of the diagram, in my series of coming articles. My suggestion is just click on the picture to see the full size image and understand the framework.

Though while reading this article and seeing the diagram, you may think that this system is only relevant to manufacturing and specifically to assembly line. But, it is nowadays being used even in services and software companies. Only the names are different. Some know it as Lean Manufacturing System. Then most of the companies, while adopting this methodology and customizing it, gives it own name like Maruti calls it MPS ( Maruti Production System) and Subros calls it SPS (Subros Production System).

Actually, I came in touch with this methodology in rookie year of my job. I was so fascinated by it, that I kept on bugging my HR and Top Management guys, till they didn’t sent me to actually see it happening in Toyota. And it was, simply mind blowing system. They actually practice, what we read. So, friends that’s all for now, keep reading for my next article on the critical elements of this System.

Types of Information Systems

The figure gives you an overall idea of what is the kind of information, which is required at all levels in an organization. It may be any vertical -Manufacturing, Accounting, Marketing or HR, everyone needs information.

To process and provide this information to the various levels we have different Information Systems.

1) TPS – Transaction Processing System: Computerized systems that perform and record the daily routine transactions necessary to conduct the business; they serve the organization’s operational level. At the operational level, tasks, resources, and goals are predefined and highly structured.

2) KWS – Knowledge Work Systems: It serve the information needs at the knowledge level of the organization. Knowledge work systems aid knowledge workers. Knowledge work systems (KWS), such as scientific or engineering design workstations, promote the creation of new knowledge and ensure that new knowledge and technical expertise are properly integrated into the business.

3) MIS – Management Information Systems: Information systems at the management level of an organization that serve the functions of planning, controlling, and decision making by providing routine summary and exception reports. MIS summarize and report on the company’s basic operations. The basic transaction data from TPS are compressed and are usually presented in long reports that are produced on a regular schedule. MIS generally provide answers to routine questions that have been specified in advance and have a predefined procedure for answering them. These systems are generally not flexible and have little analytical capability.

4) DSS – Decision Support System: Information systems at the organization’s management level that combine data and sophisticated analytical models or data analysis tools to support semi structured and unstructured decision making. DSS help managers make decisions that are unique, rapidly changing, and not easily specified in advance. They address problems where the procedure for arriving at a solution may not be fully predefined in advance. DSS have more analytical power than other systems. They are built explicitly with a variety of models to analyze data, or they condense large amounts of data into a form where they can be analyzed by decision makers. DSS are designed so that users can work with them directly; these systems explicitly include user-friendly software. DSS are interactive; the user can change assumptions, ask new questions, and include new data.

5) ESS – Executive Support System: Information systems at the organization’s strategic level designed to address unstructured decision making through advanced graphics and communications. They address non-routine decisions requiring judgment, evaluation, and insight because there is no agreed-on procedure for arriving at a solution. ESS creates a generalized computing and communications environment rather than providing any fixed application or specific capability. ESS are designed to incorporate data about external events such as new tax laws or competitors, but they also draw summarized information from internal MIS and DSS. They filter, compress, and track critical data, emphasizing the reduction of time and effort required to obtain information useful to executives.

So this in Brief is the various Information Systems used in the organization. This is a very fundamental concept and should be known in case you aspire for a degree in systems management.

Is India a BPO- Perfect Nation????

We all know that today BPO sector is booming like anything and lot of young graduates seeing their future in this sector. So, recently I read article on this sector and came to know very strange things about this. A recent study shows that 60 % of companies (software and outsourcing) fail to meet expectations in India. Lot of western firms, who initially shift their operations to fully owned units in low-cost hubs like India, becomes less attractive to global players. It’s a reality and in the last few months several leading MNCs have shut down their Indian captive centers. A clutch of global firms like GE, British airways and Citibank have already sold off their BPO subsidiaries. And others like Microsoft, Cisco and Texas Instruments are outsourcing the less critical work to third parties, Instead of their Indian companies.

The Bitter truth is MNCs are increasingly logging off from India.

A recent research shows that majority of MNC-managed captive centers in areas like product engineering, R&D, IT and other BPO services are facing grave problems. Initially we all know that large number of global IT firms set up internal campuses in India because of factors like cost savings, availability of a rich talent pool and capability to execute large projects but the reality is different. Over 60% of the captive centers are struggling due to lack of management support, spiraling costs, attrition and integration issues.

The things don’t change suddenly but it starts for the last two years. In the last 12 months there has been a tremendous cost escalation for manpower and infrastructure. This is making difficult for global firms to run small operations successfully.

Initially when MNCs decided to set up captive units, they underestimated India’s cost structure and hence the operational expenses. The global players think that there were savings to be made not just in skilled labour, but everything else like infrastructure and other fixed cost but things changed in last two years, the salary hikes among the highest in software and BPO segments and real estate prices have zoomed even in small towns.

While costs are important, there are other factors forcing a rethink among MNCs. One, India has a high rate of attrition, coupled with low productivity levels. According to one study the annual attrition rate is as high as 30 percent. This makes it more expensive for MNCs as they have to either keep a huge bench (a waiting pool) or consistently hire HR consultants to hire new sets of employees.

Also, India’s Popularity in this sector among global players reduces because of emergence of new nations like China, Russia, east Europe, East Asia and other nations which have high productivity and good infrastructure facilities.

I write this article because today lot of people want to pursue their career in this sector not only after graduation but also after PG courses….and because things are changing very fast in this sector, the one who have interest in this sector should see whether they can have a long future in this sector or not.

5 Principles to Cement Customer Trust

From Anne M. Obarski
Retail Customer Service and Loyalty
Have you ever second-guessed yourself, on purpose? I imagine all of us have from time to time. Sometimes it is about a decision we have made or those we fail to make. Frequently, in our minds, we hold ourselves accountable. There are times, I am sure, that every single one of us have said, "If I only had it to do all over again", I would have done such and such differently.
But life does not allow us that option. I believe that everything happens for a reason to allow us to grow and become the person we are to be, with our faults and assets, failures as well as accomplishments. We are here "on purpose!"
My purpose in my business is to encourage organizations and people to find a way to trust again. "Trust is probably the most basic human value," says Fred Rogers, better known as Mr.
zSB(3,3)

Nothing is harder to regain, than lost trust.

I believe people do business with people they trust. I believe people do business with people who are knowledgeable, efficient and will deliver what they promise.

As the holiday season approaches, I am already hearing retailers questioning what type of season it will be. The downfall of large corporations looms large and the stock market is the fastest roller coaster ride I have ever seen. And even Martha Stewart is starting to look a little tarnished. So the question is, who will the consumer plan to spend their carefully allocated holiday dollars with this year.

I believe it will be with those businesses that have earned the customers trust.
How did those companies develop and cement that trust? They promised and delivered the following principles of building and maintaining trust.

T - Truth

Trust and solid relationships are built on telling the truth. Companies must maintain this principle both with internal and external customers. It is imperative that this value is represented in everything a company does. We have seen how the lack of solid ethics can crumble even the largest of companies.

R - Responsibility

Trust is built when everyone within an organization realizes what their responsibilities are and that they are held accountable for them. Choose to schedule reviews quarterly for every member of the company to make sure they are aware of their responsibilities. Take ownership of mistakes and be diligent to find ways to make corrections.

U - Unselfishness

Trust is built when employees give of their time and talent in the workplace and do it, unselfishly. Customers appreciate the employee who goes out of their way to satisfy the customer. Customers don't appreciate hearing how badly the employee wants to go home, or how they didn't get a break, or how awful their schedule is.

S - Security

Trust is built on a feeling of security. Good lighting in the parking lot and store entrance, fitting rooms with doors that lock, employees that handle ringing up a sale with accuracy, and alarm systems that are visible are all ways to make the customer feel safe in your place of business. Employees want to feel a sense of job security and that they are appreciated for the job they do.

T - Teamwork

Trust is built when everyone within the organization feels a sense of ownership. How well do your employees work together? Are they willing to go out of their way to help each other out? Do the managers roll up their sleeves to help when the workload is overwhelming? Is there a reward system in place that encourages employees to want to excel? Most importantly, are there cheerleaders within the organization to keep the momentum going when times are tough?
We are at a time when gaining a customers' trust is critical. It is a daily process, on purpose. It is a time to maximize potential, ethically and to deal with conflict and problems, with credibility.
It is a time not to look back but look forward. It is a time not to say, "if only", but to daily say, "I am proud of what we did". And we achieved it, on purpose!
About the Author Anne M. Obarski is the "Eye on Retail Performance". She is an author, professional speaker, retail consultant and Executive Director of Merchandise Concepts. Anne works with companies who are performance, profit and people focused and she helps leaders see their businesses through their customers’ eyes. Anne’s mystery shoppers have secretly "snooped" over 2000 stores searching for excellence in customer service. To reach Anne or learn more, visit http://www.merchandiseconcepts.com/.

Strategy as Defined by Michael Porter

Earlier, it was believed that operational effectiveness is the best way to develop a strategy for the business. It is the only way to survive in the competitive world. It was believed that creating a positioning in the market will actually hamper the competitive growth and adaptation to the modern techniques. It will very soon be outdated and then we will be out of the market. It is only about the best practices adopted by the company that makes the world leader.
Michael Porter had a different view in this regard which proved to be more appropriate in the present context. Here are some of the excerpts of his ideas:
v Operational effectiveness is a necessary but not a sufficient measure to sustain in the market. Through best practices, we can definitely create a mark but on account of high technological developments, all the companies will sooner or later achieve the same. Hence our value proposition will not be sustainable.
v Different set of activities carried out by the companies helps it achieve a distinct positioning in the market which is quite important for a company to sustain world leadership.
v Our strategy must be to chose an entirely different set of activities than that of our rivals according to our company’s strengths and develop a strategic positioning in the market keeping a greater horizon in mind and not a single planning cycle.
v Strategic positioning is of three types:
1. Access based positioning-locality
2. Need based positioning- value for money
3. Variety based positioning-offerings
v Tradeoffs are a very important part of making a strategy. A company cannot go for more than one position. One cannot provide cost cutting and premium quality at the same time. The company which wants to have all the things at the same time ultimately fails due to fallacy of implementation in the whole process. Hence tradeoffs are quite necessary for any company.
v Fit must be developed among various activities to make then inimitable for the rival companies. It gives the companies a sustainable competitive advantage over the competitors.
v There are three degrees of fit:
1. First order fit allows various activities to be interlinked.
2. Second order fit has all the activities reinforcing each other to create an inimitable set of activities.
3. Third order fit has an optimization of efforts i.e. how all the activities have been interlinked to give the most optimized set where we can have the maximum output.

v Hence a company management has to perform three core activities:
1. defining strategic positioning
2. making tradeoffs
3. forging fit among various activities

5 things you must understand about Marketing to any niche - Joseph Then

Josheph Then has elucidated 5 effective things you must keep in mind while marketing to a niche. While the strategy will remain the same for each niche, you will need to tweak it to fit whatever your specific niche happens to be.

1. Effective niche marketing requires a defined niche market. In the initial stages of your planning, you will want to clearly define who your target marketing audience is. If you can't clearly determine who that group is, then you will more than likely have a hard time finding them. After you have marketed to this group, you will then want to move on and market to a broader base; but to begin with, you will want to target this group.

2. Effective niche marketing requires that you, the marketer, determine the interests of your target audience. What is it that your audience wants most? Is it some other product that is already on the market, but with an added feature that is not available anywhere yet? If that is the case, you will want to target that base and offer that feature.

3. Marketing effectively to a niche also requires that you gain at least some credibility with regular buyers with in that given niche. If they already have their experts and their favorite products, they will have little incentive to strike up an interest in you and your products, unless you give them a good reason for why you are a viable alternative or an excellent complement, as the case may be. You can do this in a number of ways, but perhaps the best is to partner with other sites in your niche that are not directly competing.

4. Marketing effectively to a niche also requires fine-tuning. If you plan to release a new product to people who purchase in that niche, actually setup a beta testing session with those specific buyers. Allow them to use your product for free, so they can critique it, which will provide you with a means to upgrade your product, fix features, and add things on that could significantly improve the value of your product for buyers in that niche.

5. Marketing effectively to a niche also requires social proof. Again, this goes back to establishing credibility: in order to market to that select group, which already has its experts and heroes, you will want to generate some type of proof for the quality of your product. You can do this by creating a blog, giving out a demo of your product, and then asking demo users to comment on it on the blog.

I have pasted these because I think we can discuss the pros and cons of what Joseph has said. Please comment on thier effectiveness and your preffered way.

Real Estate- A Hot Sector but now reality isy something different!!!

It is the hottest sector in India Today. It is the melting pot of activity impacting several other businesses in the economy. Billions of dollars are pouring into the sector. Due to such large investment it is now focus of all the regulations in the country. Also, it impacts the common’s man living standard. We all know that for the last 3 or 4 years the property prices have shot up by 150-200 percent in all metros and other important parts of our country.

A recent study says that in India the Real estate market will expand from $16 billion to $0 billion by 2010.With so much expansion the overseas investors are pumping large amount of India in this sector. But today things are changing not whole but a bit. Although India’s strong economic growth will continue to drive demand for commercial real estate but due to oversupply of commercial space the trend is changing these days.

Because of large number of projects going on in real estate sector and side by side government increase interest rates for Home Loans the game is changing its trend. Specially for small players who only dependent upon investors and actual purchasers for their project but due to increase interest rates common man start waiting for right time when interest rates going to reduce and investors are also not interested in investing money in this business because as per study the value of property will decline by15-20 percent in near future.

I will tell you by giving real example, around Chandigarh lot of developers are coming up because everyone knows that IT industry targets Chandigarh so there is huge amount of requirement of flats in 2-3 years. Developers who are renowned and have money with them start their projects already and customers also show interest in them but for small players the game which was in their favor last year now go against them because they are not getting customers and investors for their projects because of falling in property rates and increase in interest rates for home loans.

The Impact of economic forces on demand and supply of real estate

Economic Growth Increases:

Annual GDP growth rate of 8-9 percent forecast.
Highest growth rate is in the service sector which has highest demand for commercial real estate.

Inflation Decreases

Though lower than the February levels, it continues to remain a major concern.
It is why the government has cut liquidity, tightened credit supply and raised interest rates.

Money Supply decreases

Liquidity seen as a key factor in inflation and overheating of real estate sector.
Restricted availability of funds to reduce options with developers/builders.

Interest Rates Decreases

Higher interest rate result I higher borrowing costs.
Developers are exploring other options while home loan borrowers are revaluating options.
Investors redefine their expected returns from the sector.

Being a Civil Engineer and having a family business of real estate I have lot of interest in this sector so as Prabal started this new blog I decided to put something on that.

Hopefully everyone should contribute in this blog because I think it help us in enhancing our knowledge in different sectors .