VOLTAS LIMITED FLOW OF PRESENTATION o o o o Introduction Background Of the case The Reformation/ Renovation Identifying avenues/ path for

growth/ expansion The electro-mechanical business The unitary cooling business o The Big Bang Strategies New Products Brand Building Channel and Service o Outcome of Strategies used o References INTRODUCTION Voltas is one of the world's premier engineering solutions providers and project specialists. Founded in India in 1954 as a JV between M/s Volkart brothers & TATA Sons Ltd., Voltas Limited offers engineering solutions for a wide spectrum of industries. Voltas is into Electro-Mechanical Projects & Services Electrical, Mechanical & Refrigeration Solutions Electrical & Mechanical Solutions (international) Water Management & Treatment Engineering Products & Services Textile Machinery Mining & Construction Equipment Materials Handling Equipment Unitary Cooling Products Air Conditioners Commercial Refrigeration Water Coolers & Dispensers

BACKGROUND OF THE CASE:

In 1954, Voltas initially marketed imported products and provided engineering services and later in 1960, it started its manufacturing air conditioning and refrigeration equipments. Voltas registered its first loss in 1996-97. Voltas Limited decided that the company would concentrate primarily on its air conditioning and engineering businesses and announced to invest about Rs. 200 million in brand building and another Rs. 60 million in expanding its distribution network in the retail AC market for the year 2006-07. Voltas formulated Big Bang strategy aimed at becoming the market leader in retail AC segment by 2004. Company aimed to capture a 20 % market share in the Indian retail AC market.

THE REFORMATION/ RENOVATION One core management team started to analyze the viability of each business Air conditioning and Engineering were two profit making businesses Idle assets were either leased or were sold In 2004 Refrigerator manufacturing units were sold to Electrolux Voltas grouped its remaining business into 4 segments To reduce cost Voltas started to reduce its work force and encouraged new talent or ideas

PORTERS FIVE FORCES ANALYSIS Threat of new entrants (LOW)

Capital Requirements The initial investment that goes into setting a plant is considerably high as there needs to be sufficient investment in providing quality components and also in R&D to meet the changing technology. Thus there is a low threat of entry into this sector. Economies of Scale Manufacturers in HVAC industry need to build economies of scale due to high fixed costs and meet the demands. Due to this there is a low threat of entry into this sector. Customized Products In the central and packaged AC system level of customization is high and it is not possible for new player to do that customization. Due to customization, the threat of new entrants is low. Switching costs It is not easy to switch to the new players in the field due to high initial investment & also a number of collaborations & contracts exist among the players of the world who are into the same line of business. There is thus a high switching cost and thus a low threat to entry. Distribution Channels The existing players have strong distribution channels and thus difficult to match proving to be a high barrier of entry.

Bargaining power of suppliers (HIGH)

Supplier Concentration There is comparatively higher number of suppliers. So the bargaining power of suppliers is low. Importance of volume to suppliers The industry is dependent on volume sales and hence facilitates bulk buying. This reduces the bargaining power of the suppliers. Presence of substitute inputs In the current scenario there is little substitution that is possible to the raw materials that go into the manufacturing of air conditioning products. This increases the bargaining power of suppliers.

Bargaining power of buyers (HIGH)

Quality vs Performance There are large numbers of players in the market. So quality and performance is the most important factor while selecting the product. It gives high bargaining power to buyers. Backward Integration Backward integration to make the air conditioners means a high investment and also expertise in the manufacturing would be required. Bargaining power would be less since the probability that the companies would integrate backward would be less.

Firm Rivalry (HIGH)

Size of Industry The industry is not concentrated & there are large number of Indian companies and MNCs, hence there is a high degree of rivalry. Industry Growth rate As long as the entire economy is in a growth face and real estate sector is in boom there will be a huge growth in the industry Fixed Cost The manufacturers of air conditioners and refrigeration products have high fixed costs as there is heavy investment in plant and the development of new technologies thus decreasing the degree of rivalry amongst them. Product Differentiation Product differentiation is very less hence high degree of rivalry. Brand Identity / Client loyalty This plays a very important role in the market of HVAC industry. Generally it is seen once a client goes for some brand he sticks to the same brand in the future also.

STRATEGY AT VOLTAS
A) GENERIC STRATEGY: Generic strategy includes Product diversification and focus of the company PRODUCT DIVERSIFICATION Product Range is from contemporary to hi-tech Diversifying products so that each and every segment is covered FOCUS OF THE COMPANY Provide contemporary and best-in-class products meeting customer needs and value expectations

 Build customer loyalty by strengthening after-market operations through service. Ensure cost reduction in all aspects of operations to achieve total cost leadership in the market. Achieve market leadership through people by attracting, developing and retaining excellence in personnel. Energize the organization through teamwork to ensure that various functional areas work together to deliver results in a quick and effective manner. Explore new avenues for revenue generation leveraging established manufacturing and distribution strengths. Spending a good amount of its revenue on R&D. B) ALTERNATIVE STRATEGY: BIG BANG STRATEGY Introduction of new product. Brand building. Establishment of a widespread service network.

c)

MARKETING STRATEGY

Marketing is not Euclidean geometry a fixed system of concept. Rather marketing is one of the dynamic fields with in the management arena. The market faces continually a new challenge every day and companies must respond to it positively. Therefore it is not surprising that new market idea keep surfacing to meet new market place challenges. The market process is applicable to more than goods and services. Anything related to market including ideas, events, policies, prices and personalities comes under market strategy. However it is important to emphasize opportunity in the market through market strategy. Following strategies adopted by the organization. Niche Marketing: Voltas has kept their marketing objectives for niche segments. The specific marketing effect helps them staying focused with their product and customer demand Multi Prolonged Strategy: Voltas marketing strategy is a long term approach. They have not changed their stand since the inception of the brand and continue to promote the same value proposition of economic energy consumption to their customer segments. This has helped them in creating a brand sentiment within masses and the featured product are helping them in getting into cutting edge competition. Corporate selling at discount price to Employees: Voltas has adopted an amazing marketing technique of offering their AC product at reduced price to the employees of TCS. This promoted the brand within in house. On the basis of marketing strategy an organization runs in the market. It is several types of which makes helpful to increase sales and turnover of the organization.

SWOT ANALYSIS
STRENGHTS Design and manufacture of industrial equipment. Management and execution of air conditioning. Public works projects. Sourcing, installation and servicing of technology-based systems. Voltas represents a number of global technology leaders, serving diverse industrial sectors and applications. WEAKNESS Not targeting the mass market OPPORTUNITIES The Indian Mass Market. The high end value driven proposition helps increase the Market Share. VOLTAS is well known for its product differentiation THREATS Indian Mass Market may be captured by a rival company, LG, Videocon, Samsung etc. Due to increased price of inputs and continuing price erosion there is downtrend in the consumer durables market.

Case Analysis of Voltas Ltd: From Turnaround to the Big Bang

Question-1: What was the main reason for Voltass downturn in the late 1990s? How much of it was due to changes in the business environment, and how much due to the companys investments in the refrigerator business? The company's basket of diverse businesses had become an unmanageable agglomeration, its key divisions were running up losses, its cost structures were looking increasingly unsustainable, and ablated workforce was adding to the troubles. Voltas had just registered its maiden loss (Rs. 17 crore for 1996-97) and had missed paying a dividend for the first time in the 43 years of its existence. The company's share price reflected this decline, sinking to Rs 21 from a peak of Rs 225. External factors which contributed to the downturn wereIn 1993, when the American AC giant Carrier (which had entered the Indian market in 1987) launched a new range of new generation ACs, which promptly knocked off Voltas from its leadership position. And between 1993 and 1997, with the entry of the Korean, Japanese and other global giants - LG, Samsung, National, Electrolux, Whirlpool and so on - Voltas's market eroded further. By 2001, its position slipped to No. 7 (LG emerged as No.1), with market share plunging to a low 7 per cent. 1. The demand fell down by 9% in 1996-97. 2. Due to the high excise duty of 110% unorganized sector had a price advantage and therefore, a big market share (more than 50%) has been acquired. 3. The low returns from the businesses the companys debt doubled from 1.65 billion in 1994-95 to 3.3 billion 1996-97. Internal factors which contributed to the downturn were1. The company invested heavily in the business b/w 1994 & 1997. 2. At the same time Voltas had diversified into several unrelated business. 3. Voltas acquired the loss-making Hyderabad ALLWYN LTD. 4. As per Exhibit IV huge workforce, out of which 80% was unionized, was adding to the trouble. 5. Employees were used to an old world style of functioning, with laid-back attitude to work. The refrigerator business was providing to be a major drain on the companys resources. The impact of refrigerator business can be analyzed from the data given under restructuring. One of the biggest restructuring processes was for refrigerator business. In 2000, Voltas sold three of its four refrigerator manufacturing facilities along with the brand rights for the Allwyn brand to Electrolux for a sum of Rs.1.76 billion. It agreed to a non-compete clause in the sale agreement with Electrolux which barred Voltas from marketing refrigerators under the Voltas brand until 2006-07.

Question-2: What could be the reason for the company initially missing the bus in the retail AC market? Compare Voltass experience with the experience of other leading companies in the Indian consumer durable market, which suffered greatly when the market was opened to competition? What factors (internal and external) helped Voltas win back market share in the AC market, when several of its contemporaries wilted under competition? In 1993, the excise duty on ACs was reduced from 110% to 60% which made the unorganized sector lose its price advantage, thus helping organized players to make further inroads. Several MNCs entered the retail AC market in the period. Increasing prosperity levels among Indians on other, the retail AC market started showing healthy growth. However, amid its restructuring efforts. Voltas failed to capitalize on these changes. By 2001, Voltas was reduced to being a marginal player in the retail AC market with a mere 6.8% market share and the 7th position in a market with 17 players. Till 1990s, before the market was opened to competition, Voltas had dominated the Indian AC market with a market share close to 40%. The unorganized sector accounted for another 50% of the market. This clearly shows Voltas experience cant be compared with other leading companies as their combined market share was only 10%. And due this only Voltas also suffered maximum when market got into recession. Vision and fortitude were the essential ingredients in the Voltas revival, but it was leadership that defined and drove the comeback Mr. Khurody began the restructuring task by forming a core management team comprising Mr. Soni, then head of finance, human resources chief K. S. Oberoi, and Bir Singh, head of business excellence. The roadmap was charted and areas of restructuring identified before work began on all fronts. The change mantra was straightforward: chop, revive and grow. The objective was a leaner and more agile company which would parlay its prime strengths in air conditioning and engineering. With these criteria, Voltas' assorted businesses were scrutinized pitilessly with two key criteriaFirst, was the business sufficiently attractive, especially in the global scenario? This included evaluation on market size, likely growth and competitive pressures. Second, did the company have the required capabilities to compete successfully? This included a dispassionate assessment of Voltas vis--vis the competition on critical success factors in the business. Scrutiny on both these counts provided the leadership team with a common measurement tool for assessing the company's diverse business portfolio. Businesses not passing the test the white elephants, the bleeders, the unsustainable elements and non-core activities were dropped with no regrets. Voltas reorganized its remaining portfolio into four clusters: international operations (primarily electro-mechanical projects in the overseas market); air conditioning and refrigeration (primarily HVAC projects in India); unitary products (room air conditioners, water coolers and commercial refrigeration products); and engineering products and services. Chief operating officers were appointed and handed over a mandate to manage the business with financial and

operational freedom. Implicit was the redefinition of the company as a provider of engineering solutions, with manufacturing as an important support activity. These were the businesses which had yielded the most sustainable growth for many years. The model of relying entirely on inhouse manufacturing was replaced with an outsourcing-assembling-branding model of business. This delivered a twin advantage: Voltas cut down its cost and, at the same time, climbed up the market-share ladder with technologically superior products. Between 1998 and 2003, Voltas's rightsizing drive brought down its staff numbers from 10,269 to 3,935. The VRS exercise accounted for 2,681 of these. The VRS cost Voltas Rs 135 crore, but resulted in annual savings in staff cost of Rs 60 crore. Taking the revival agenda forward, contemporary corporate human resources policies were introduced. The focus shifted to training and development, highperforming employees were rewarded, and salaries were linked to performance. For financially shaky Voltas, managing cash flow for the revamp was another priority1. Shedding non-profitable businesses and selling idle real estate and investments coughed up Rs 410 crore. 2. This was used to repay debts of Rs 260 crore and also pay for the VRS initiative. 3. The company's annual interest payments have been brought down from a high of Rs 48 crore in 1998 to Rs 2 crore in 2004. The Voltas of today bears the stamp not just of a reassessment of business priorities, but of a progressive and innovative outlook worthy of a global player. With all restructuring measures in place and firmly consolidated Ranking 1 2 3 4 5 6 7 8 9 10 Source: CRISIL MARKET SHARE LG 28% Others 23% Samsung 21% Voltas 19% Hitachi 10% Source: CEAMA, GEPL Capital Research (2011) Brands LG Hitachi Samsung Voltas Godrej Panasonic Whirlpool Blue Star Mitsubishi Electric Onida