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LANCASTER UNIVERSITY

The case of Diversification:


Case Study analysis of the
nature of competition in
emerging markets

Amit Bhargava
10/24/2009

© Amit Bhargava, 2009, Some Rights Reserved

Except where otherwise noted, this work is licensed under http://b-amit.blogspot.com


http://creativecommons.org/licenses/by-nc-sa/2.5/in/
Acknowledgement

I would like to mention special thanks to my supervisor, Dr. Winston Kwon, whose
timely advice, suggestion and guidance helped the report to its logical conclusion. I
would also like to acknowledge the help and support received from 94.3 MY FM and
the MBA office in providing assistance with this report.

I would also want to thank my friend and colleague, Ms. Preeti Anand for the valuable
discussions I had with her and the suggestions I received.

Lastly I want to thank my wife, Nupur and my kids, Manasvi and Aayush, without
whose moral support, my MBA would have remained a dream.
Table of Contents`
List of Figures ........................................................................................................................5

List of Tables .........................................................................................................................5

Abstract .................................................................................................................................6

1 Introduction....................................................................................................................8

1.1 The Context ............................................................................................................8


1.2 The motivation .......................................................................................................9
1.3 The Objective .........................................................................................................9
2 Literature Review ......................................................................................................... 11

2.1 Economic Oligopolies ........................................................................................... 12


2.2 Porter‟s Competitive Advantage Framework ......................................................... 15
2.3 Hypercompetition ................................................................................................. 17
2.4 Business Houses and competition ......................................................................... 20
2.5 The Research Questions ........................................................................................ 22
3 Methodology ................................................................................................................ 24

3.1 Data Collection ..................................................................................................... 24


3.1.1 Interview....................................................................................................... 24
3.1.2 Archival Data ................................................................................................ 26
3.1.3 Observations as Data source .......................................................................... 27
3.2 Data Analysis ....................................................................................................... 27
4 Findings ....................................................................................................................... 29

4.1 Nature and structure of Radio industry .................................................................. 29


4.1.1 Phase II licensing .......................................................................................... 31
4.1.2 The case of small and large players ............................................................... 32
4.2 Competition .......................................................................................................... 32
4.2.1 Competition for advertisers: The listenership issue ........................................ 33
4.2.2 Competition for advertisers: The price wars................................................... 35
4.2.3 Competition for talent ................................................................................... 37
4.3 Differentiation ...................................................................................................... 38
5 Discussion .................................................................................................................... 41

5.1 The stakeholders – defining the nature of competition ........................................... 42


5.1.1 Business Groups ........................................................................................... 42
5.1.2 Regulators ..................................................................................................... 42
5.1.3 Competitors .................................................................................................. 43
5.1.4 Customers ..................................................................................................... 44
5.2 The nature of competition ..................................................................................... 45
6 Conclusion ................................................................................................................... 51

7 Bibliography ................................................................................................................ 54
List of Figures
Figure 1: Actors defining the nature of competition in regulated environment ....................... 41
Figure 2: Business Group - Strengths, Strategies and Objectives ........................................... 42
Figure 3: Regulator - Strengths, Strategies and Objectives .................................................... 43
Figure 4: Competitor - Strengths, Strategies and Objectives.................................................. 44
Figure 5: Customer – Strength, Strategies and Objectives ..................................................... 44
Figure 6: Diversification Framework - to achieve Customer Lock-in regulatory market ....... 49
Figure 7: The steps of diversification in a regulated environment .......................................... 50

List of Tables
Table 1: Interviewee details .................................................................................................. 25
Table 2: Top 5 players in the radio industry with respect to the no. of stations ...................... 29
Table 3: Number of FM stations in the top Indian Metros. .................................................... 29
Table 4: Ownership details of radio companies in India ........................................................ 30

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Abstract

This paper explores the nature of competition in emerging markets, specifically in the
context of India, in a regulated environment. The paper identifies various contextual
strategic factors for diversification and proposes a diversification framework to
achieve customer lock-in, in a regulated environment. Through an ethnographic case
study, the characteristic of the private Indian Radio industry are examined and various
factors that influence competition in such an industry are identified. The main
characteristics of the industry are that it is an oligopoly, faces regulatory barriers to
entry and witnesses fierce competition.

The heavy competition forces firms to constantly innovate to develop competitive


advantage which is temporary – a hypercompetitive characteristic. Various theoretical
frameworks besides hypercompetition, including oligopoly and Porter‟s competitive
advantage framework, are studied to identify the explanation behind the nature of
competition.

The literature, despite making rich contributions, does not collectively explain the
competition observed in the radio industry raising a new question to answer. If
business groups are aware about the competition in the industry then why do they get
into it in the first place? Is diversification a defensive strategy by spreading the risk or
an offensive strategy to lock-in the customer so as to earn superior rents by monetising
every touch point?

The findings suggest that competition observed in radio industry is a function of the
process of diversification. The regulatory barriers do act as hurdle when the players
are outside the industry, once they get the license the barriers act as insurance against
future competition. The players need to be able to sustain operations for long terms
before the benefits can be enjoyed. This requires players with large resources who
look at diversification as long term hedging strategy to earn superior rents. The
business groups, which are resource-rich, do not get into an industry to compete but to
lock-in the customer enabling them to mitigate their risks. A locked-in customer
presents an opportunity to monetise various touch points of the customer with the
business group, representing a long term competitive advantage.

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Even though certain other industries may exhibit characteristics similar to radio
industry, the diversification by business groups is not a simple phenomenon. Future
research can try to identify other factors that prompt business groups to diversify and
test the applicability of the framework proposed.

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1 Introduction
1.1 The Context
Media industry is a highly competitive industry all around the world. Companies
(“Fox News vs. MSNBC”,”CNN vs. Time Warner”, “BBC vs. BSkyB”, “ABC vs.
CBS”, etc.) have been fighting for the leadership position incessantly for a long time
and have received comments from all corners on their rivalry. The fight for leadership
has invariably meant competition for maximum listenership or viewership, eventually
translating into higher advertising revenue, which is the primary source of revenue for
various types of media in the media industry (RevenueRecognition.com, 2007).

Of various media types, print and television media have a business model where the
media company is able to monetise the subscriber of the service and also the
advertiser. In the radio business, however, such a model does not seem to work (with
the exception of satellite radio service (Wikipedia, 2009b) – e.g. Sirius, Worldspace
where the subscriber or the listener pays for the radio broadcast). In the radio industry,
it is only the advertiser who pays for the delivery of his message to the listener of the
radio broadcast.

In India, the radio industry has existed for a very long time but the privatisation of the
broadcasting industry began around the late 1990s. The first private FM channel came
in the year 2001 and since then the industry has proliferated. Across 91 cities in India,
there are more than 200 radio stations controlled by more than 22 companies or
business groups (Table 4). The holding groups have variety of interest, some have
interest as varied as operating a television network to publishing magazines and
newspapers, while other offer a complete range of media solutions. Though the radio
operations are spread across 91 cities, majority of competition within the industry is
concentrated in big cities, as listenership is larger in bigger cities that provide multiple
target groups to the advertisers.

It is interesting to note that in the radio industry, largest market share is controlled by
few groups (Table 2) leading to concentration of economic power, a characteristic of
oligopoly (Henderson and Henderson, 1968) and all businesses vie for the same
advertisers, hence bringing in intense competition. As the audience base across the
cities is similar and the medium is relatively new, the content is largely homogenous
because stations do not differentiate the content for the fear of alienating audiences,

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leading to a loss in advertising revenue, the main cash flow stream. It thus appears that
radio firms in the markets have been unable to build a sustainable competitive
advantage to grow.

1.2 The motivation


Understanding the competitive environment in a nascent industry in emerging markets
has been a challenging area of research. The area is of interest because emerging
markets, which are characterised by gradual opening of the markets for domestic and
foreign players, are heavily guarded by regulatory policies as strong regulatory
framework indicates support for private investments (Doh et al., 2004). Certain
industries such as the private radio industry in India, which is the subject of this study,
also entail high initial setup costs. The regulatory policies and setup costs erect high
barriers to entry for new players to enter.

The private radio industry in India is an oligopoly, is undifferentiated, experiences


heavy competition without any competitive advantage and is backed by large business
group. In the emerging market context, the characteristics of this case pose certain
interesting questions – i) why do business groups have to diversify into related or
unrelated businesses? ii) Why is intense competition observed in markets that
apparently appear to be oligopoly? iii) Can barriers to entry and intense competition as
observed be explained by any common phenomenon and iv) Are characteristics
observed here transferrable to other emerging industries in the context of emerging
economies such as India?

1.3 The Objective


The objective of this paper is to examine the nature of competition in the emerging
markets that are characterised by oligopolistic industry. While there has been
considerable research on the questions raised in previous section, the major
concentration of the research has been within the context of developed and advanced
economy. For emerging economies, the research has been relatively subdued.

The plan of the paper is the following. Next section (section 2) briefly discusses the
literature relevant to oligopoly and the role of regulators, competitive advantage,
hypercompetition, and business houses. Section 3 presents various findings and
observations and the discussion over the findings in light of literature review is done

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in section 4. Section 5 contains concluding remarks with discussions and suggestions
for further research.

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2 Literature Review
In recent years, businesses have become more active, agile and responsive to the
competitive threats for their growth. The markets do not have perfect competition,
which assumes that each agent or player in the market has access to complete
information, transactions would not involve any costs and contracts would be kept and
honoured. To talk of perfect competition is at best an approximation (Montiel, 2003).
Perfect information symmetry leads to perfect markets whereas markets are
characterized by information asymmetry that results in competition. In asymmetric
markets, the party that has access or control of crucial information usually has the
most power with regards to prices.

Regulators have vested interest in maintaining competition in the market for the well
being of the consumers. Regulators, in the shorter term want to benefit the consumers
with lower prices and wider choices and in the longer run want to have competition
leading to innovation and higher quality of products and services (Commission, 2001).
Consumer behaviour is also guided by the variety and availability in the market.

Oligopoly suggests that firms will collude to earn maximum economic rent, which is
against the basic philosophy of regulators. Regulators restrict such collusion by
bringing in multiple players in the market who have their vested interest. Price
competition, which may then take place, forces firms to be competitive and get into
price wars when competitive moves can be predicted and the firm can plan for its own
actions in anticipation. Strategic behaviour that enables organizations to erect barriers
to entry requires stability and calls for sanity in the competitive landscape. The call for
sanity is however a paradox because markets are imperfect and information is always
asymmetric (Png and Lehman, 2007). The stability will, however, allow business to
achieve competitive advantage based upon the key competency. In strategy
management the argument for competitive advantage has posed with three different
perspectives – (a) importance of barriers to entry, (b) long term competitive
advantage, and (c) differentiation that gives sustainable advantage to a firm
(McNamara et al., 2003). D‟Aveni (1994) proposed a radically different view of
competitive advantage, hypercompetition. In hypercompetition, D‟Aveni suggests
that, markets are fundamentally unstable and competitive moves of various players in
the industry create a state of constant disequilibrium and change.

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In India, radio industry exhibits varied trends. It is oligopolistic, characterised by few
players who try to build sustainable long term advantages. The players invest huge
sums of money (among various costs, Rs. 12.5 million is the license fee for one
metropolitan city for one player) as they are backed by traditional media houses who
are resource-rich and can undertake such investments. At the same time, any new
player can come into the industry if allocated a license through auction process.
Though licenses and initial capital requirement act as significant entry barrier but once
the hurdles are crossed, the industry witnesses significant competitive forces in action
with price wars and non-differentiated content, as everyone wants to play safe, so as to
attract maximum audiences and advertisers.

In order to examine the nature of competition in the radio industry, this paper relies
heavily on the research conducted earlier to evaluate the nature of competition and the
strategies followed to compete. The sectional plan for literature begins with a review
on the economic oligopolies (section 2.1). Section 2.2 evaluates Porter‟s competitive
advantage framework. Hypercompetitive economies are also studied to understand
their characteristics after Porter‟s framework in section 2.3 followed by literature
review on the business groups in the context of emerging economies in section 2.4.
Throughout the review, the factors that explain the nature of competition in emerging
economies are identified.

2.1 Economic Oligopolies


This section tries to identify if competitive advantage is sustainable in oligopoly on
the basis of entry barriers in the market. Markets in an industry follow different
market structures. Whether the structure is monopolistic where only one seller exists
or is oligopolistic where few players make up the industry, the objective is to
maximise profits (Fraja and Delbono, 1989). While monopoly is one extreme form of
the market structure, the other end of the market is characterised by perfect
competition. As explained previously, perfect competition does not exist in practice
and regulators abhor monopolies for their capabilities to stifle competition and for not
bringing innovation to the market to benefit consumers. The anti-trust enforcers, i.e.
the regulators‟, main goal is to ensure „competition and diversity‟ (Ekelund et al.,
2000). The various anti-trust cases brought against the technology companies such as
Intel, Microsoft, etc., are testimony to the regulators view on such monopolies of
private companies (Trott and Weil, 1998; www.wsj.com, 2009). Regulators have keen

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interest in welfare economics (Little, 2002) and hence treat competition as a tool to
promote economic efficiency. In order to achieve economic efficiency resources are
allocated following the Pareto efficiency (Pazner and Schmeidler, 1978) principle,
which ensures that no one is better off at the expense of others.

Because the regulator wants to foster competition in an oligopoly and also ensure that
diverse players dot the landscape, it uses various instruments to provide resources to
the players who stimulate competition. One of the common instruments to control the
industry is through license allocation granted via auction, which according to Eli
Noam (1998) erects capital barriers to entry for new entrants and inevitably leads to
oligopoly (Brennan, 1998). The auctions of spectrum, a scarce resource, despite
criticism that it forms a barrier to entry from Noam, present a huge advantage to the
government for whom, fostering competition is paramount, generates huge amount of
revenue to support public finances, allay charges of protectionism by instilling
transparency and by removing opacity (McMillan, 1995). This also brings information
about the business plans of the businesses in public domain (Binmore and Klemperer,
2002). Auctions also allocate resources whose efficient utilisation by private sector
provides services to the public. However, revenue collection from auctions is not the
main objective because if it were than government would have offered a single
monopoly license to an operator – at the cost of creating inefficiencies (McMillan,
1994). With the usage of various instruments like auctions the regulator has been able
to create a new industry, foster competition within existing players and also invited
diversified businesses for diversification. For example, the telecom industry globally,
faces fierce competition even though the industry is dotted with few players, an
oligopoly characteristic. During the 700 MHz spectrum auctions in the US in 2007,
the few telecom companies bid excessively to either win new spectrum or frustrate the
entry of new players resulting in the US exchequer earning $19.6 billion (Peter et al.,
2007; BusinessWeek.com, 2008). This auction was characterised by entry of
companies such as Google, a software company, trying to diversify into telecom,
suiting regulator‟s goals.

For any new firm to enter into a market characterised by oligopoly, high barriers to
entry exists. Barriers to entry have been interpreted and defined differently by
different researchers. Bain (1956) in his pioneering work on competition introduced

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the concept „barriers to entry‟ where he identified three sources of barriers – (a)
absolute cost advantages of incumbent firms, (b) economies of scale, and (c) product
differentiation advantages of incumbent firm. Barriers to entry define the
competitiveness and performance of an industry (Weizsacker, 1980). Grant (2002)
however, argues against the effectiveness of such barriers. He suggests that barriers in
an industry may be ineffective for businesses diversifying from other industries
because diversifying players possess resources and capabilities that allow them to
overcome entry barriers, but similar barriers may be effective for new entrants into the
industry. Such characteristics of entry barriers indicate that players with resources and
deep pockets can enter any industry and render such barriers ineffective.

In an oligopoly, the entry and exit from the market are important to consider in
understanding the effectiveness of entry barriers. When a new firm enters in an
established market, it faces existing players who have already recouped their
investments and their fixed costs have been amortized over the period. Such new
players face the prospects of a relative higher cost (Abbring and Campbell, 2007),
which makes the entry difficult for new players, because these players will not have
the cost advantage which existing firms will enjoy.

An important characteristic of oligopoly is price competition. With few firms in the


market, each controlling substantial market share, there is a motivation among players
to earn maximum economic rent with or without entering into formal agreements (a
collusive strategy) by virtue of their market share and product demand. While firms
may want to limit production and sell the limited produce at maximum price, Zhao
and Szidarovszky (2008) suggest that any additional output that a firm in the
oligopoly produces increases the total output cost in the profit function of the
company thereby reducing the overall profit. This has a very important implication for
the firms in the oligopoly. For firms, whose sole objective is to maximise the profit
any possible means to maximise revenue for no additional input is a welcome move.
Cartel formation, price fixation or minimum price agreement without formal
agreement are all then desirable actions on part of the players. However such actions
would be against the basic tenet of competition and hence regulators tend to guide the
industry with policies and guidelines, thus making such pacts illegal.

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Because regulators have policy instruments such as licenses with them to ensure
competition even in oligopoly, traditional definitions fall short to explain the
phenomenon experienced in the industries such as radio or television where licenses to
operate are governed and granted by the regulator. Such industries exhibit
characteristics of oligopoly such as limited number of players who control majority of
market share but the governmental regulations do not encourage price fixing. It leads
to the question: Is competitive advantage sustainable in oligopoly, characterized by
regulatory barriers to entry? The competitive advantage as defined by Porter is
discussed next.

2.2 Porter’s Competitive Advantage Framework


In markets that are oligopoly and characterized by regulatory barriers, and where
regulators ensure that competition does take place in the market, players need long
term differentiator to build competitive advantage. Is such advantage even possible in
such markets, if yes, how do firms build competitive advantage? This is the main
question that is addressed in this section.

Firms in order to have competitive advantage in the marketplace need resources.


Competitive advantage, whatever its source, ultimately can be attributed to the
ownership of a valuable resource that enables the company to perform activities better
or more cheaply than competitors (Collis and Montgomery, 2008). Porter‟s seminal
work on competitive advantage suggests that organizations achieve competitive
advantage through three different generic strategies – (a) overall cost leadership, (b)
differentiation, and (c) focus (Johnson et al., 2005). Porter‟s views were supported
from neo-classical economics perspective where firms compete to utilise cost
leadership or product differentiation by trying to create imperfect competitive markets
that enable firms to maintain leadership over their competitors. Firms in such market
conditions differentiate themselves by trying to create barriers to entry for other firms,
however such entry barriers may be ineffective for players who have resources and
capabilities to enter (Grant, 2002). Differentiation is a defensive strategy for the firms
as they either defend themselves against the competition or benefit from the
imperfection in the market by influencing it in their favour (Jacobson, 1992).

In the resource-based strategy or traditional view on strategy, the sustainability of


competitive advantage is given the paramount importance. However, Porter‟s

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approach and the resource-based approach contrast each other in terms of the lens
used to view the firm. Porter views the firm as a bundle of activity, where activities
provide competitive advantage whereas resource-based scholars view firm as bundle
of resources (Spanos and Lioukas, 2001) where resources such as cash, human talent,
etc., provide competitive advantage. Despite this difference both approaches argue
about deriving sustainable competitive advantage for firms to compete. Porter and
others have argued that competitive advantage can indeed be sustainable (Makadok,
1998) based on firms activities, however this thinking is influenced by the resources
that a firm enjoys. If the resources are easy to generate or can be imitated by the
competitor then such resources can no longer provide competitive advantage to the
firm. The resources which provide the capability to a firm to compete, guide the firm‟s
future strategic decisions (Bogner and Barr, 2000). Firms that have marginal resources
can only breakeven whereas firms with superior assets earn rents (Peteraf, 1993). In
inter-firm competition, resources or strategic capabilities such as deep pockets, access
to technology (patents), knowledge, etc., act as advantages for the existing players.
These resources act as capabilities only when industry functions normally and firm‟s
resources cannot be imitated by others. As long as the key resources remain in limited
supply, firms will be able to enjoy competitive advantage. However, in emerging
markets where one of the key barriers to entry is the regulatory approval
(American_Bar_Association, 2005; Bennett and Estrin, 2006), regulatory approval
becomes the strategic resource for the firms in the market domain – the set of markets
in which a firm operates (Baum and Korn, 1996). Inside the market domain firms still
have to create and employ superior resources and create differentiation to enjoy
superior economic rents.

However, within the market domain, the incumbent players constantly innovate and
disrupt the status quo to generate excess profits that safeguard their positions enabling
them to defend their market share, which in turn creates barriers to entry for a new
player (Levin, 1978). This defensive strategy provides a competitive advantage to the
firms as the firms entail investments, benefits from the first or early mover advantage,
create economies of scale or enjoys regulatory protection in form of approvals
(Bennett and Estrin, 2006), which then act as deterrent to the new player. While all of
these may amount to significant entry barriers, these barriers provide only a limited
advantage to the incumbent. In the emerging markets, where technology and

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knowledge is not a limiting factor as it can be bought off-the-shelf from developed
markets or elsewhere, such advantages are unique only for a very limited amount of
time. The shorter time window requires that players in the industry move swiftly to
maintain their competitive edge (Richardson, 1996). The swift/dynamic movements
are contrary to what Porter suggests through the Five Forces model, which is static in
nature. Porter‟s view on Five Forces model can be summarised as to find a position
(clearly static) on which to found corporate strategy (Thomas, 1996). The competitive
advantage thus achieved should be for long term to be sustainable allowing players to
first find such advantage and then enjoy the competitive edge resulting from such
advantage. Firms in changing markets enjoy such benefits for a very limited period of
time. In an emerging market scenario, the resources, which according to the resource-
based-view may appear to be valuable or non-imitable are easily replicable because
large untapped markets attract players from all sections of the business spectrum.
Firms have to provide value-for-money proposition to their customers to be treated as
both cost leader and innovative product provider. As suggested by Johnson and others
(2005), this requires firms to identify what they provide best and then work towards
the same. The generic strategies then adopted could help the firm to provide value-for-
money to different customers for achieving competitive advantage.

While firms try hard to build competitive advantage as suggested earlier, the emerging
question is: Is competitive advantage really a possibility in a rapidly changing
environment, a characteristic of hypercompetition, which is further discussed in the
next section

2.3 Hypercompetition
If long term competitive advantage is not possible in rapidly changing markets, then
what are the factors that explain the phenomenon of temporary competitive
advantage1 in such markets? The hypercompetitive industries are also characterised by
rapid changes in environmental factors such as technology and regulation, relative
ease of entry and exit by rival firms and ambiguous customer demands (Bogner and
Barr, 2000). This section attempts to review literature to identify if hypercompetition,
as defined by D‟Aveni (1994), explains intensive competition in the context of
emerging markets. D‟Aveni‟s defines hypercompetition as „an environment

1
Temporary competitive advantage is a characteristic of hypercompetitive industry.

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characterized by intense and rapid competitive moves, in which competitors must
move quickly to build advantage and erode the advantage of their rivals‟ (Wiggins and
Ruefli, 2005). In such an environment, acquisition of dynamic capabilities or
preparing for dynamic competition becomes a strategic issue for the organization. In
dynamic competition, the technology changes at various points in the value chain that
forces the organization to create different strategic assets that bring new streams of
cash flow (Thomas, 1996). According to Volberda (1996), firms, when faced with
rapidly changing environments, cannot compete with traditional and unique routines
that form part of their core-competence. Instead, they must develop organizational
capabilities that allow them to be highly flexible so that they can adapt to competitive
change.

Because of the level and intensity of competition in hypercompetitive industries, the


external factors and the ease of entry of new competitors need to constantly innovate
which requires upgrade in skills, investment in technology and, flexibility in
operations. The successful firms utilise these factors to disrupt the status quo in the
industry (D'Aveni, 1994). This disruption causes barriers to quickly disintegrate
leading to another important characteristic of hypercompetitive industry – low barriers
to entry. Since disruption could come in from established as well as new competitors,
firms do not always know who their rivals are (Fiegenbaum et al., 2001). This is in
direct contrast to conventional competitive model where firms tend to erect high entry
barriers so that oligopolistic, if not monopolistic, trends could be set in the industry to
generate maximum economic rents. However, in markets where focus is on flexibility,
a focus on historical advantage may be deluding (D'Aveni, 1994) as disruptive forces
do not allow equilibrium to set in bringing in no specific competitive advantage for
the players.

Hypercompetitive industries by virtue of the nature of such industries face intense


rivalry. Intense rivalry results in intensive innovation as firms try to build strategic
assets that may help in building capabilities to compete in future. It also leads to
lowering of costs, improvement in quality and service and creation of new products
and services (Thomas, 1996) leading to differentiation among the players. In this
process, the rivalry increases firms overall value and also the value of industry
(Thomas, 1996) which leads to the overall growth of the industry.

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While hypercompetition explains many trends such as fierce competition, price wars,
technical innovation, etc., it fails to explain why the industries regulated by regulatory
structures such as licenses in the telecom industry or in the radio industry exhibit
hypercompetitive trends despite oligopolistic characteristics such as high barriers to
entry. The barriers are erected by regulators and the firms in such industries try and
obtain maximum benefits with such barriers. The firms in such industries are normally
those firms or businesses that have deep pockets which subsidizes the long term loses
and have technical know-how to operate. The firms operating in this industry are large
and utilise their huge resources to create new advantages or frustrate new players in
the industry by protecting their existing markets. Two examples illustrate this
tendency. In order to protect their New York City market from competition with
Cingular, when three 10-MHz licenses were auctioned, Verizon and AT&T bid
heavily to win the licenses even though they had such licenses (Peter et al., 2007). In
another instance, AT&T agreed to purchase the 700 MHz spectrum from Aloha. This
spectrum would have been valuable to new entrants, but AT&T willingly paid more,
possibly in an effort to frustrate the acquisition of such valuable spectrum by a new
competitive force (Peter et al., 2007). Such firms then enjoy superior economic rents
by virtue of their discretion over pricing and thus the industry exhibits oligopolistic
trends. Even the regulatory barriers further aid such firms to keep new competition at
bay. The markets where such firms operate also exhibit perfect competitive traits as
firms have to constantly innovate to create new product offerings and develop new
capabilities. Thus hypercompetition exhibits traits of oligopoly and perfect
competition, but according to Fiegenbaum and others (2001) it is not a simple
combination of both.

Because of competitive pressures the hypercompetitive industry exhibits mixed


characteristics, the industry may provide highly differentiated or completely non-
differentiated product offering to its customers. Even the firms offering such
products/services are isomorphic in various aspects such as parental background,
sharing of similar talent base, occupying similar territories to operate, etc. These firms
utilise their deep-pockets to differentiate and maintain their leadership position by
bringing in innovation, training the talent, building brands, etc., so as to compete and
attract business. In the hypercompetitive industry as players try hard to differentiate,
they end up looking and staying undifferentiated, because every player is trying to

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outsmart the other. However, the players in the industry keep building short term
unsustainable competitive advantages (Ilinitch et al., 1996) with different innovations
and development of new products, which will soon be obsolete because other players
will imitate and develop better products. It raises an important question to consider,
does hypercompetition really explains the firm‟s quest for competitive advantage in
markets where extensive competition only allows temporary advantages.

2.4 Business Houses and competition


If firms are looking for competitive advantage and are willing to sustain losses then
what explains the rationale behind such subsidies on part of the parent business group
that saw certain merit in diversification to such industries. According to Khanna and
Yafeh (2007), diversified business groups are ubiquitous in emerging markets and
even in some developed economies. These groups typically consist of legally
independent firms, operating in multiple industries, which are bound together by
persistent formal (e.g., equity) and informal (e.g., family) ties. Alvar Cuervo-Cazurra
(2006), suggests that business groups are a set of legally-separate firms operating in
multiple strategically-unrelated activities that are under common ownership and
control.

As per interpretation from literature on Hypercompetition, competition in the


hypercompetitive industry can come from any possible source as firms would not
know who their rivals are (Fiegenbaum et al., 2001). In an oligopoly because few
players hold maximum market share, for any new player who enters the industry
needs to be resource rich to disrupt the structure. In the emerging economy context,
such resource-rich players normally come from existing business groups which are
ubiquitous and they often control a substantial fraction of a country's productive assets
and account for the largest and most visible of the country's firms (Khanna and
Rivkin, 2001). With such rich endowment of resources and visibility, business groups
are well poised to either challenge existing players in the industry or diversify into a
new industry.

As players begin diversification into related or new industry a pertinent question


emerges, „Is diversification a profitable strategy for business groups?‟ An answer to
this question was attempted by Khanna and Palepu (2000) in the Indian context.
According to them, in the emerging markets such as India, there are a variety of

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market failures, caused by information and agency problems because of absence of
intermediary institutions such as mutual funds, investment bankers, etc. Such
imperfections in emerging markets make acquisition of necessary inputs such as
finance, technology, and management talent costly. A new business may be most
profitably pursued as part of a large diversified business group when the group acts as
an intermediary between individual entrepreneurs and imperfect markets.

Such an investment by enterprise easily overcomes the barrier of high initial setup
cost, which is the characteristic of oligopoly. The competitive advantage that these
enterprises drive from their affiliations with large business group is also observed in
the developed economy – Japan. In Japanese „keiretsu’, or the Japanese business
group, the interaction between the human resources and the information sharing
among other parts of the groups are the key attributes that provide competitive
advantage to the entire business (Dyer, 1996). The advantage enables information
sharing across the value chain and increases the overall value of the business group,
because transfer of proprietary information to alternate activities results in scope
economies (Teece, 1980). Ability to diversify is also an advantage as diversification is
a unique entrepreneurial capability as long as market imperfections remain (Guillén,
2000). In the context of emerging markets the lack of institutions, lack of financing
sources, lack of market for labour forces, etc., generate imperfections, which force the
entrepreneurs or the business heads to identify and create new sources for such
resources. The evolution of Korean business groups – the chaebols (Chang and Hong,
2000), Indian business houses, or the Japanese Keiretsu, seem to suggest that
diversification makes sense for businesses as it enables them to overcome market
imperfections. It may appear initially that there is value destruction on account of
diversification as it accounts for the diversion of productive resources to sectors,
which may appear to be non-core and non-productive, but Khanna and Palepu (2000)
suggest that, subsequently the value increases once diversification exceeds a certain
level.

Being part of large group also enables business to bring in human and technical
expertise that is required to compete and innovate in an intensely competitive
industry. Players should be able to sustain the business for a sufficiently long period
before they can breakeven and start earning profit. Internal business transactions in a

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business group offer the benefit of cross-subsidy (Chang and Hong, 2000). The
chaebols in Korea, the business houses in India and elsewhere in emerging economies
cross-subsidize the transactions to overcome the lack of institutions that are required
for businesses to grow.

Because business houses are capable of overcoming barriers and of innovation, they
can create both – long term and short term (temporary) advantages. This suggests that
business houses can influence competition when they achieve leadership position.
Thus, the question to consider in research is to understand, how, in new markets, do
business groups affect the nature of competition in their quest for leadership.

2.5 The Research Questions


While each of the four sections of the literature review describes certain aspects of the
phenomenon in question, which is the nature of competition in the radio industry, it
leads to new questions to answer. In order to investigate, four research questions have
been developed, which are the focus of the study. The research has been conducted as
a case study of an organization and the research method for that case study are
described in the next section of this paper. The four research questions are
summarised below:

1. The first question tries to understand economic oligopolies and explores


barriers to entry to identify sustainable competitive advantage. The question is

Is competitive advantage in an oligopoly, where competitors limit competition


to share the economic rents, sustainable on the basis of barriers to entry?

2. The second question evaluates Porter‟s competitive advantage framework in a


dynamic environment. The question is –

Does Porter’s competitive advantage framework explain the lack of


competitive advantage to firms in rapidly changing and evolving markets?

3. The third question explores the nature of intense competition that is observed
in markets that appear to be oligopoly. The question is –

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Does Hypercompetition explain the phenomenon of extensive competition
among firms in the emerging market as competitors react intensively to each
other’s moves for temporary advantages?

4. The fourth question explores that why business groups diversify into related or
unrelated businesses. The question is –

How does the existence of business houses and their diversification into
sectors such as new media and effect the nature of competition?

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3 Methodology

Given the nature of the question described in the literature review that this paper seeks
to answer and the ease of access to various resources to understand, to conduct
research and to learn by observations, the private Indian Radio industry was the
subject of study. The period of study was a little over two months from middle of June
to middle of August, 2009. During this period, the author had relatively easy access to
the industry as an MBA intern with one of the top five radio companies, here referred
to as The Radio Company (TRC), in India. Being an intern gave the freedom to
develop rapport with the employees and approach them easily as a co-worker and also
the author was able to ask for references, outside the company, of professionals.

Of various types of research methods, this paper followed the case study method. The
case study method is appropriate in this study because it allows to define research
topics broadly and not narrowly (Yin, 2002). In this paper, the case study method also
allowed analysing the observations and dynamics within a single organizational
setting (Eisenhardt, 1989). This research is primarily based on observations and
interviews in an organization requiring subjective understanding of the phenomenon
under observation. The understanding has resulted in the development of a theoretical
framework presented in this paper.

3.1 Data Collection


This research is an ethnographic case study of a single organization involving the use
of multiple methods: semi-structured interviews, secondary data sources, and as a
participant observer.

3.1.1 Interview
Among various sources identified for data collection as part of research, interviews
were used as primary means to collect information because interviews served the
purpose of giving explanatory insight (Riley et al., 2000) in understanding the
industry. Various experts within the industry were identified for collecting qualitative
data. The questions asked to such experts were open ended questions. Primarily the
interviewers were divided into two different types. Type I interviewees were those
who were employed outside TRC. Type II interviewees were TRC employees. Both
types of candidates were senior employees in their respective organizations.
Interviewees‟ details are summarised in Table 1.

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Table 1: Interviewee details

Designation of interviewee Interview Type

1. National Head – Brand II


2. Chief Operating Office II
3. Sales Executive II
4. Sr. Manager – Marketing I
5. Brand Manager II
6. Manager – Revenue Planning I
7. National Creative Associate II
8. GM – Production II
9. Chief Financial Officer II
10. Deputy Manager – Legal II

A total of twelve people were identified for the interviews. Of these twelve people
four were type I and eight were type II. Type I people were contacted and requested
for granting time for an interview at various point in time during the study period.
Only two people responded and agreed to be the interviewed while the other two did
not respond despite repeated attempts. Of the two people who responded, one person
expressed his inability for a personal interview but willingly agreed to be interviewed
over phone. There was possibility to identify more people to interview and get more
qualitative data, but paucity of time and approaching deadlines forced to work with
the limited set of people.

Among Type II people, only one person was formally requested for a full interview
and rest were interviewed informally at various points in time. The interview styles
with Type I and II people are explained later in this section.

Before the onset of interview, the interviewees were apprised of the purpose of
interview and the duration of interview. Most interview sessions lasted thirty five to
forty five minutes and focussed on structure, competition and vision. Structure
involved, for instance, the ROI on investment and the regulatory issues. Competition
involved issues such as price wars, differentiation and innovation. Vision involved
discussion over issues that have impacted the industry at large historically and how
the industry might respond to those issues in future.

Interviews were not tape recorded; instead notes were taken during all interviews. All
interviewees gave permission to be quoted anonymously in the report. Though the
formal interviews were structured around themes, the interview style was discussion

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like so as to enable free flow of thoughts during the session. Because there are
problems of focus, meaning and perspective (Riley et al., 2000) associated with the
interviews, the interviewer acted as facilitator during the interviews to ensure that
interviews do not extend beyond the agreed time, remain focussed and the thought
process of the interviewee is neither inhibited nor biased with interviewer‟s opinions.

In-formal interviews were mainly Type II. Because all interviewees were accessible
during the office hours, it was a deliberate endeavour to ensure that interviews were
informal. All participants were informed of the overall objective of the discussions,
which was to understand the industry in general and the company in particular.
Various people were contacted at various points in time during the study period. The
interview approach was a semi-structured. Most of the observations in this study come
from such interviews, where the interviewer approached the interviewees with some
prepared questions. This interview style helped the interviewer to deviate during the
interview to gain more insights when interesting points came up. Many times formal
notes were made and sometime mental notes of discussions were taken. Such notes
were transcribed post discussion and the interviewees are quoted wherever required to
illustrate a point in discussion in this document. The semi-structured interviews
permitted deviations leading to unstructured information that benefitted the research
as the interviews did not have any pre-planned agendas, helping in learning more by
listening (Starbuck, 1993). This benefit was not available with the structured
interviews.

3.1.2 Archival Data


Archival data were used as secondary sources of information and were used to
substantiate the findings from interviews. Such data were used from various private
and public sources. The private source included in-house publications, the industry
magazines and the public relation articles compiled by a PR agency that were
subscribed by the company. The industry magazines helped in understanding the
issues that affected the industry. Public sources that were used comprised of
government policy documents, company annual reports, and the industry and sectoral
publications from advisory firms such as E&Y, KPMG and PwC. Internet was used
extensively to search various web articles, blogs, and news items to supplement the
primary information.

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3.1.3 Observations as Data source
Another method that was considered important to understand the way business
functions and competes with other firms was the direct observation method, also
called ethnography. Of two types of observations, overt and covert, the overt
observation method where the identity of the observer is disclosed to the group being
studied (Riley et al., 2000), was followed in this study.

Observation method was followed because the author worked as an intern in the
organization and was introduced to the people and the working culture of the
organization. People, who are part of the organization, were also briefed at various
points in times in various groups, by the author itself about the purpose and duration
of stay. Because, the author worked as an employee to the organization, information
collection and understanding people‟s acts was easy, while appreciating the rationale
behind those acts. The employees also did not behave differently or hide any data or
information and benefitted the author in the study.

The author was regularly called upon to participate in internal debates, product
evaluations, competitive analysis, idea and product presentations, branding exercises,
etc., which are integral to the organization‟s functioning. Such participation enhanced
the understanding of the business of the company in particular and the industry in
general. The author directly participated in two activities – (a) development of a
business proposal for a new product launch as part of branding and (b) participation in
one of the internal groups meeting to identify the steps needed to make the company
the leader in its markets.

As part of the larger group, the observations provided an opportunity to analyse


whether the data from interviews remained consistent with what was observed and
experienced within the company. The opportunity to directly observe the
organizational functioning helped to deduce quality inferences from the data generated
via interviews.

3.2 Data Analysis


The data collected in the study is observation and interview based. Main analysis,
which led to generation of a theoretical framework, is based on the interviews‟
transcription analysis. The transcription analysis followed the seven-step process
(Easterby-Smith et al., 2002), which is an evolved framework of grounded theorizing

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(Glaser and Strauss, 1967). Grounding theory focuses on the process of generating
theory rather than a particular theoretical content (Patton, 2002) and is used to
describe any type of social theory that is built up from naturalistic observation (Riley
et al., 2000). Of various seven-steps processes, this study includes familiarisation,
through the read and re-read step (Riley et al., 2000), and other steps including
reflection and conceptualisation of the interviews and other observations to identify
patterns.

The observable patterns are evaluated in light of existing theoretical frameworks as


outlined in the literature review section. The observations, the interviews and other
secondary sources of data, are presented in the next section – Findings, and discussed
in „Discussions‟ section.

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4 Findings
This section narrates the observations, which have been developed using the case
study method described in the methodology section and is structured around three
main themes – the nature of industry, the competition and the differentiation factor in
the industry.

4.1 Nature and structure of Radio industry


Indian radio industry is very fragmented and highly regulated industry. There are
nearly 248 radio stations controlled by handful of companies and each company
requires as many licenses as the number of cities it operates in. Many companies
operate just one or two stations. In terms of number of operating stations, 63 percent
of the stations are controlled by top 5 players (Table 2) in the country and typically
one company controls nearly 40 percent of the total industry revenue.

Table 2: Top 5 players in the radio industry with respect to the no. of stations

FM Station No. of stations Turnover of promoter group* (Rs.


Billion)
Big 92.7 FM 45 –
Red FM 43 10.08
Radio Mirchi 32 2.29
Radio City 20 85.37
MY FM 17 –
Source: Data collected from annual reports (year 2009) of the listed companies.

The metro cities are already crowded with the number of stations. Regulations permit
9 to 11 radio channels per class A+ or class 12 (NSSO, 2007) city and most of the
metro stations are close to the permitted limit with various FM stations. Because these
cities are overly populated and have diverse set of people, they attract maximum
attention of advertisers, who see these cities as lucrative markets for their products.
Table 3, lists the number of stations in the top Indian metros.

Table 3: Number of FM stations in the top Indian Metros.

Class A+ city (Metro) No. of stations


Bangalore 11
Kolkata 10
Mumbai 9
Delhi 9
Chennai 8

2
Cities with population of more than a million

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The Indian radio industry is characterised by its ownership structure. Apart from the
state owned broadcaster, All India Radio (AIR), nearly 90 percent of the private radio
stations in India are controlled by diverse business groups. These business groups
have interests in diverse set of activities. Majority of the business, though, is
concentrated around media activities such as Television, Newspaper, or print.
Diversification in other media such as radio, it seems was also a necessity for
traditional media houses as the primary business experienced slowdown. In 2008,
print media growth slowed down to 7.6 percent whereas television and radio recorded
double digit growth (HT-Media, 2009). The prospects of slowdown in the primary
business seem to main factor in diversification.

A marketing manager explained:

“Media houses diversify as they want to become the one stop shop for
all media requirements. They do not want either the consumer or the
advertiser to go away and fulfil their needs elsewhere. This is the
reason you see, companies diversifying into online portals, print,
television, magazines, radio, etc.”

Table 4 lists all such radio companies that are part of large media groups and many
such groups have primarily been newspaper publication companies. The opportunity
to diversify into radio offered such companies a new revenue channel, a shorter
payback period and represented a step in becoming a one-stop shop. One CFO
explained, “We looked at Television before looking at radio but there were too many
players and payback was ten years away, radio offered a shorter window”.

Table 4: Ownership details of radio companies in India

Station Promoter Type of group Group’s main business

1. Best 95 FM Asianet Communications Limited Media house Television


2. Big 92.7 FM Reliance Entertainment Ltd Diversified group Many businesses
3. Chennai Live Muthoot Group Diversified group Many businesses
4. Club FM 94.3 Mathrubhumi Media house Newspaper
5. Choklate 104 FM Sambad group Media house Newspaper
6. Fever 104 FM HT Media / Virgin Media house Print
7. Friends FM Ananda Bazaar Patrika Group Media house Newspaper
8. Hello FM Daily Thanthi Group Media house Newspaper
9. Meow FM India Today Group Media house Print
10. MY FM Bhaskar Group Diversified group Many businesses

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11. Radio City Ispat Industries Ltd. Diversified group Non-media
12. Radio Dhamaal BAG Films & Media Ltd Media house Television
13. Radio Dhoom Neutral Publishing House Ltd. Media house Newspaper
14. Radio Indigo Jupiter Capital Venture fund Non-media
15. Radio Mango Malayala Manorama Media house Print
16. Radio Mantra Jagran Group Media house Newspaper
17. Radio Mirchi Bennet and Coleman Co. Ltd. Media house Many businesses
18. Radio One Mid Day Multimedia Media house Newspaper
19. Radio Oolala NE Television Networks Media house Television
20. Radio Tadka Rajasthan Patrika Media house Newspaper
21. Radio Tomato Pudhari Publications Media house Newspaper
22. Red FM Sun TV Media house Many businesses

4.1.1 Phase II licensing


Before the second phase (phase II) of frequency auction in 2005, few media houses
operated 21 private radio stations in 12 major cities across India. During the second
phase the number of media groups reached more than 22. These media groups are
successful in their area of primary operations. Some have national while others have
strong regional media reach. In the first phase of frequency auction, metros and bigger
cities were put on the block. These markets despite their unfavourable cost structure
witnessed heavy competition. Considering this, many players during the second phase
thought contrarian. Among the players who bid in the second round many players
were strong regionally. When they bid they played to their strength and won licenses
to operate in cities where they were strong. The players thought of consolidating the
regional markets before moving to the bigger markets, the metro markets. However,
many players miscalculated and various regulatory restrictions forced extensive
competition among the players to attain leadership in their markets. The phase III
auctions with easing of regulation and more frequency on auction will witness even
more competition. According to the GM, Productions,

“It was a strategic blunder to not bid for the metro market. Radio doesn’t work
backwards. You have to take the best market first so that your cash flow is
strengthened, brand is recognized and then move to smaller markets. Everyone
knows Mirchi, but we have to explain [to advertisers] our strengths. [Then
the] frequencies were available for nearly Rs 100 million in Delhi, now it is
imperative for us to be in the metro market if we want to improve our market
share but the cost of licenses will nearly [be] four times. [Now] there are

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hardly 1 or 2 frequencies on the block in phase III. Earlier there were at least
4 to 5.”

4.1.2 The case of small and large players


In order to avoid monopoly, the regulatory limit on the maximum number of stations
that a business can operate is 45. Small players normally have two to four stations.
Contrastingly, the large players are present nationally and/or in multiple regions.
Large players are backed by resourceful media houses or diversified business groups.
Big FM, for example is backed by Reliance Anil Dhirubhai Ambani group. It has
presence in 43 cities across the breadth of the country. 94.3 MY FM, part of Bhaskar
group, is present in 17 cities. Both groups have interests in diverse sectors and are
large corporate groups in India. Big FM offers its advertisers the benefit of national
presence, whereas MY FM offers its advertisers the benefit of cross-advertising in
newspapers. It is natural for advertisers to gravitate to such stations.

Regulations at present do not permit consolidation of business, before five years of


operations. Recently two major networks – „S FM‟ and „Red FM‟ merged together to
operate under the brand of Red FM with 41 stations across the country
(exchange4media.com, 2009b). It is the first move of consolidation in the industry.
When asked across the industry players during the interview it was felt that more than
the small players, the bigger players were needier to consolidate their operations.
According to the marketing manager, “Small players are spoiling the market for the
bigger players” while the revenue planning manager commented, “Strategic sales tie-
up with the regional or small players will eventually happen”.

The comments of the revenue manager found support from the act of a top player too.
Radio Mirchi, the market leader, has entered into strategic alliance with a regional
radio player, Radio Mantra of Dainik Jagran group. „This agreement has resulted in
an encouraging flow of incremental revenues to both the brands/networks‟ (ENIL,
2009).

4.2 Competition
According to the annual study on Indian Media and Entertainment industry (KPMG,
2009), radio‟s market grew to Rs. 8.4 billion last year which is a growth of 13.4
percent over the previous year. The share of radio in the Indian advertising market
was 2 percent in 2005 (CII-KPMG, 2005). In the period of 2006-08, the industry

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witnessed a CAGR of 19.7 percent. In the same report (KPMG, 2009) it is projected
that Indian radio industry will grow to Rs. 16.3 billion by the year 2013, witnessing a
CAGR of 14.2 percent.

In 2008, the size of the radio ad industry as a percentage of the total ad industry was
about 4 percent. This is against a global average of about 8 percent (KPMG, 2009).
Presently maximum advertising revenue is available in metro cities and hence it is
without doubt that such markets attract the maximum attention from the radio stations.
These markets house advertisers such as PepsiCo, Coca-Cola, etc., who have national
presence and the focus of management in radio companies is on acquisition of such
clients who provide with bulk business. Internationally the ratio of national vs. local
advertising mix is 25:75, whereas in India the mix is 75:25 (KPMG, 2009).

Because the disproportionate focus on few large markets, large markets have fierce
competition. Many industry experts were of the opinion that presence of small players
in the metro markets distorts the market as these small players do not have the scale to
support advertisers which bigger players have. In order to attract business, smaller
players promise everything to the advertisers. A Type I marketing manager
commented that pressure on the sales team to get the business is immense. Their
mandate is, “Get the business, no matter how”. One observation that author had during
the study at TRC, was that the sales team members have to visit at least three different
clients during the day for client servicing. “We cannot stay in the office beyond 11 am
unless there is a specific need”, commented one sales team member.

4.2.1 Competition for advertisers: The listenership issue


The issue of listenership is important for the advertisers and hence to the radio
companies. Many a times, the media buying on behalf of main advertiser is done by
advertising agency. These agencies have the mandate to allocate the advertising
budget across a bouquet of media channels in different markets. In order to allocate
this budget, the advertising agencies look at various figures to ascertain the maximum
reach of their advertising campaign among their potential buyers. According to one
sales team member, “These [ad agency] guys are just management trainees […]. They
have no idea about the actual potential or the reach their product gets by advertising
with us. In order to convince them, we need [listenership] numbers”.

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Because listenership figures are important, it is observed that every player in the
market claims itself to be the leader in the market of its operation. This is an
interesting fact because industry seems to be divided on the issue of listenership.
There is no unanimity on the way radio listenership is tracked as there are two
different methods to calculate listenership. Each method suggests common and
divergent results in different markets. The results aid advertisers in allocating their
budget and hence each player claims to be the leader. Few snippets:

“ENIL is a leader in listenership in most of its markets. The recently declared


Indian Readership Survey Results (IRS R1, 2009) has placed Radio Mirchi as
the largest radio network in the country”. (ENIL, 2009)

“It [Fever FM] became the No. 1 radio station in Mumbai and No. 2 station in
Delhi and Bengaluru; as per week 19 (3rd - 9th May 2009) data of RAM,
during the year”. (HT-Media, 2009)

“For the quarter ending March 2009, in its markets, MY FM has the largest
market share in the markets where it competes against Radio Mirchi and Big
FM”. (MYFM, 2009)

“The Radio Audience Measurement (RAM) data for Week 20 for Mumbai, New
Delhi, Kolkata and Bangalore is out. Radio Mirchi continues to lead in Delhi
and Kolkata, and has added Mumbai to its fold too. However, Big FM is the
undisputed leader in Bangalore.” (TelevisionPoint.com, 2009)

It is apparent from the snippets above that each channel claims itself to be the leader
in its respective market of operations and even the listenership surveys point to
different results each week in different markets. A player, who dislodges the leader of
the last week, claims itself to be number one. The fight for leadership has its own
significance. From a media planning perspective, for the advertisers, the higher the
listenership, the higher is the distribution of the advertisement. The advertiser gets the
maximum return on its investment when its advert reaches a large population.

Another interesting finding was the fight in the industry over the selection of the
listenership measurement tool. While one particular tool results indicate one station
leading all over the places and even in cities where the station is not present, another
tool indicates different set of players to be the leaders in same or different cities

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(exchange4media.com, 2009a). This distinction is important to consider because
advertisers, as indicated above go by the listenership figures and if one station is the
leader according to figures then majority of the advertising revenue will go that
station. Other stations, who are competing for the business find themselves at loss
with such publication and hence the discontent in using the figures.

The competition to be leader on the listenership measurement tools for getting the
advertisers on-board presents an interesting case. Channels, which are leaders or
proclaim themselves to be the leader with some survey results, clearly have advantage
in attracting the advertisers and are able to charge good rates for the inventory, the
airtime, they sell. Radio Mirchi, for example, charges nearly double the rates for its
inventory, the airtime, than any other station (Wikipedia, 2009a). It has nearly 40%
share of the total market (ENIL, 2009) and believes that it can become a premium
channel by charging more to its clients. While there are players like Radio Mirchi who
on one hand command a premium, there are other stations who gain market share by
discounting almost everything on offer. These small channels force price wars.

4.2.2 Competition for advertisers: The price wars


On the issue of price wars, different players have different views. While some clearly
avoid price wars by maintaining premium over their brand and do not bend backwards
to win business such as Radio Mirchi, there are others who think price wars as
inevitable. When asked, the National Creative Associate said, “Future will see lot of
price wars. We do get into price wars in all cities we operate in”. The revenue
planning manager said, “As policy, we do not fall into the trap of price wars, we stick
to our prices, but in the current scenario, it is the small players who spoil [the] market
for the bigger players. It would be an anomaly that we get into price wars”, he further
commented “Presently getting the business is the key. The current rates that are being
earned [make] the business unsustainable. The ROI (return on investment) is not
there”. Another sales person commented, “Though it is the small players who get into
price wars, even the bigger players are party to it”.

It appears that there is a clear dichotomy in views among the players with respect to
the pricing. Big players want to protect their markets and are not willing to get into the
price wars openly, whereas mid-size or small players don‟t mind getting into the price
wars to earn the advertising revenue.

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The reason behind the price wars in radio industry besides competition, is the fact that
airtime, which is the inventory for radio companies, is a perishable commodity. The
perishable nature of the commodity forces stations to sell at throwaway prices when
sales are difficult to achieve. A CFO explained,

“Any airtime that goes unsold is a loss to the station as it cannot be recovered
back. Advertisers are knowledgeable of this fact and they delay their
purchases [up] to the last minute to bring the prices down. Even if the rate
card suggests Rs. 10 per second, advertisers don’t buy till the last minute
while continuing negotiations with multiple stations. The sales guy, who has to
sell the inventory, reduces the price, because if he does not reduce the price,
the competition will and then we are forced to get into the price wars. Any
revenue earned, for that airtime, adds to the bottom line”.

He further added,

“Radio companies have invested a lot in establishing the infrastructure for a


radio station. Even in the class C towns the monthly expenses on a station is
around Rs. 800,000 to Rs.1 million, while earnings are Rs. 200,000 to Rs.
300,000 per month. Such a huge gap in the income and expenses forces the
station to either close the operations or subsidize from the operations of other
stations [in the network]”.

The price wars have started taking its toll and CFO‟s views find support elsewhere as
well. Radio Tarang, a small radio station in the north Indian city of Hissar, recently
had its license revoked and had to shut down its operations because it could not cope
with the existing competition in the market (RadioandMusic.com, 2009). Of five FM
operators at Hissar, three are part of bigger network and hence better supported to
sustain the competitive pressure. Besides competitive pressures, players have huge
operational costs and fixed costs as well. The ten year per-city license fee paid to the
government at the time of purchasing the license through the auction, the one-time
entry fee, which is amortised over the duration of license, and the music royalty fees
payable to the music companies monthly make the operations of the business a very
costly affair. The royalty fees vary from 15% to 50% of the FM radio operators annual
revenue whereas the global benchmarks peg royalty fees around 2-3%

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(BusinessStandard.com, 2008). Besides these costs, stations have to incur costs of
operations and human talent costs as well. The cost of running stations for small
players who do not have large network of operations that can cross-subsidize non-
profitable operations make operations difficult for smaller players.

4.2.3 Competition for talent


Private FM radio industry in India is 9 year old industry and fairly concentrated in
metros. 18 percent of all private FM stations are located in metros. In the industry the
main delivery of the program is done by the Radio Jockey (RJ) over the air. The RJ is
the main attraction for a station and he drives the listenership figures on the charts for
the station. “He (The RJ) is the star”, commented the National Creative Associate,
“unless, I treat him well, train him well and make him presentable, it is impossible to
attract any listeners.” He further added, “In the industry there are presently not many
RJ’s who could be labelled as star and the real stars are very expensive. Moreover
there is crunch for talent as [the] industry is new and people do not see [a] career in
the industry.”

It was apparent during the discussions that industry faces huge manpower shortage in
terms of trained technical workforce. The size of the industry in terms of people
employed is limited as there are only 248 stations where people can be employed. The
smaller stations are particularly disadvantaged because trained and skilled people have
their personal aspirations to move to bigger cities and bigger cities can only employ a
limited set of people. “Because the skill pool is limited, the same set of people keep
floating around in the industry and thereby increasing the wage bill. Wages are an
important constituent of the overall costs.” said COO of the TRC.

Another issue that was brought forth during the discussions was the issue of poaching
and attrition. The legal affairs manager commented, “People leave organization even
without giving proper notice and do not serve the notice period. We are unable to
enforce even the contract that they sign. Actually only few people resign”. Another
manager commented, “Actually, if we identify a person and need him for the position,
we hire him by giving him 20 percent to 30 percent hike [in salary] and [we] will be
willing to buy his notice period as well. We want to get him started [on the job] as
soon as possible. Technically speaking, we poach him from the competition.”

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Unlike the television industry where sales efforts are at national level, radio being a
local medium has immense potential for attracting local advertising revenue. Local
advertising presently attracts only 25 percent of the total radio advertising and this
requires concentrated sales efforts at every station to attract local advertising. The firm
also needs to maintain a national sales team that concentrates on corporate sales. Thus,
the cost per advertiser acquisition is far higher in radio industry when compared to the
television, In a separate study that the author conducted with the radio company where
this study was conducted, it was observed that radio being a new medium in India, the
sales people need to be educated about the potential of radio who in turn could
educate advertisers for using radio as a brand building tool (Bhargava, 2009). Because
it is not a mature medium, the radio stations have to first spend efforts on training its
sales force to sell the medium and then educate its customers to buy the medium. In
order to avoid this, the stations need to find and hire the talent with right set of skills,
which is again expensive and for that stations do compete fiercely.

4.3 Differentiation
Due to regulatory reasons, the Indian radio industry can only provide non-news
content. In the phase III of licensing the definition of non-news and current affairs
broadcast is being expanded. Currently, the news and current affair broadcast, which
is normally the primary content differentiator, is not allowed by regulator who cites
difficulties in monitoring the content. This creates difficulties for the channels who try
to differentiate themselves with the competition.

Initially, the stations started off with defined niche. There were the channels that
provided content in both Hindi and English. However, the pressure to sell airtime to
recover the costs forced players to resort to the lowest common denominator in the
Indian radio market – Hindi film music, also known as Bollywood music. When asked
to comment on the music format, the marketing manager said “All companies play
safe and hence 70% [radio programming] is Bollywood [music]” and when asked
why are companies unwilling to experiment with the format, the revenue planning
manager said, “Companies do not experiment [with the format] as revenue gets hit”.

There are few channels who try to differentiate with the format, Meow FM follows
talk show format targeting women audiences, Hit 95 FM plays only English songs,
and ChennaiLive FM follows interactive talk show format and plays English songs. It

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is thus seen that there is an attempt to deviate from the mainstream format but such
attempts are relatively handful. The revenue planning manager commented,
“Companies are risk averse to innovation in the business model as the overall revenue
pie is growing smaller per player with increase in number of players”.

Despite acknowledgement from industry players that radio needs to differentiate,


players focus on differentiation is getting diluted. During my study, I observed that
more than differentiation, breaking even is of paramount importance. There is a
special drive within companies to breakeven. The national head of branding
commented, “It normally takes six to seven years for any radio company to break
even. We have been in operation of little over three years. We will be breaking even
this quarter”. Even in the office premises I could notice that there are posters and
pamphlets that motivate employees to contribute towards breakeven. At Fever FM,
there is recognition that breaking even will contribute towards improvement in margin
(HT-Media, 2009).

While it is understood that regulatory reasons are a major handicap in differentiating


with other stations, the author asked during various interactions that how radio
stations differentiate. The answers were fairly similar across the board. Some of them
are:

“Brand is the differentiator in radio industry”, – National Brand Head.

“Branding is very important”, – Revenue Planning Manager.

“Branding is the [only] differentiator”, – National Creative Associate.

“On radio the only differentiator is the brand”, – Marketing Manager.

Radio companies spend a lot of effort on branding. As 70 percent of content is


homogenous, radio stations try and differentiate among the rest. Companies try to
differentiate by building loyalty to RJ shows, which are mainly humour and chat
shows interspersed during the song and advertisement broadcast. With phase III
regulations, companies will be able to innovate in these programs by providing traffic,
weather, current affairs updates (TRAI, 2008), enabling stations to build differentiated
content. Such innovation is witnessed even now across the industry. Each channel has
properties that enable it to develop loyal listenership. However, one brand manager
commented, “brand loyalty is not the word these days, what is [to be] considered is

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brand lead”. During the study it was felt that even though channels try hard to
differentiate and obtain a lead with loyal listeners with innovative programs, the
innovations are rampantly copied. The same brand manager commented, “We do copy
ideas behind content on air from competition and even the competition does the
same”.

The industry is innovating within its limitations and is looking forward to phase III
regime when it will be able to provide for better programming and target niche
listenership to develop differentiation. As national creative associate commented,
“Phase III should ease out [the industry]. It will bring in true differentiation”.

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5 Discussion
As barriers to entry, maintained by the regulator, become expensive to crossover,
competition within the marketplace becomes more fierce, because barriers act as
insurance against entry of new firms, by acts such as price wars, content innovation,
marketing innovation, etc., to obtain competitive advantage, which enables such firms
to gain maximum market share thereby reducing their risks in other businesses.

This paper is a study of private radio industry which is relatively a young industry in
India. The paper focuses on two main challenges that the industry faces – (a) the
nature of competition in emerging markets characterised by regulatory control, and (b)
the way, firms prepare to compete in emerging markets. In this section, the research
questions identified in the literature review are answered and a process framework
(Figure 6) is proposed for diversification in a regulatory environment in the emerging
industry.

A key finding of this study is that the competition witnessed in a new industry in an
emerging market is a function of the diversification of business groups. Because
diversification is a risk mitigation strategy of business groups in an attempt to achieve
synergies, the competitive forces that influence such strategy by defining the nature of
competition are identified (Figure 1) and discussed in this paper. The group that
constitutes customers has an external influence on the nature of competition whereas
the strategies of other stakeholders help define the way customer responds to the
competition in the market.

Figure 1: Actors defining the nature of competition in regulated environment

Customers

Business Groups Nature of Regulators


Competition

Competitors

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5.1 The stakeholders – defining the nature of competition
5.1.1 Business Groups
The business group‟s (Figure 2) objective is to maximise profit and achieve customer
lock-in. Customer lock-in provides them with a competitive advantage that enables
them to earn superior rents, which would otherwise be not possible as new threats
would result in fragmentation of existing business, resulting in customer loss. In order
to achieve their objective, they try to achieve economies of scale and scope. They
possess large capital resources, have experience of operating in similar industry, and
create strategic assets for long term benefits. The process of diversification requires
resources and therefore only resourceful companies, which consider diversification
necessary, resulting in customer monetisation through customer lock-in, diversify.

Figure 2: Business Group - Strengths, Strategies and Objectives

Business Group

Strengths Strategies Objectives


 Have – resources,  Diversify into new  Increase profits
knowledge and talent business to achieve  Achieve Economies of
 Can create strategic economies of scale Scope
assets that provide long and scope.  Achieve Economies of
and short term  Leverage group Scale
advantage resources new  Achieve customer
 Can endure losses for a business until lock-in
long time. consolidation
happens

The diversification by media houses is an important strategic decision because
business model of the media industry, traditionally, has been driven by advertising
rather than subscriptions. It was observed in the study that media houses, whose
primary businesses were operating in a saturated economic environment and faced
threats from new opportunities resulting from innovation, opted for diversification.

5.1.2 Regulators
The study also showed that in new markets, regulatory policies are a major force in
defining the market. Regulators (Figure 3) want to earn better revenue, provide for
public welfare, maintain control over the media broadcast and ensure diversity in

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competition to avoid monopoly (McMillan, 1995). They, hence, allocate rights
(Rolph, 1983) to the radio spectrum, which is a public good through auction
(McMillan, 1995). They achieve this by designing policies that encourage competition
for public goods among private players because through auctions, new markets are
opened for development, which provide rent seeking opportunities for private
enterprise.

Figure 3: Regulator - Strengths, Strategies and Objectives

Regulator

Strategies Objectives
 Auction for licenses.  Policy implementation
Strengths  Limiting the  Better revenue
 Controlling power to ownership within  Market development
enforce policy the industry for public goods
 Resources such as  Phased distribution  Political control over
spectrum of licenses media broadcast
 Regulating the  Diversity in competition
content to avoid monopoly

Radio spectrum is a scarce resource used for broadcasting media. Because media
broadcast has been instrumental in shaping public opinion and because of various
sensitivities involved, regulators for political and public reasons keep strict control
over content that is broadcasted (TRAI, 2008). While they maintain control, they also
grant licenses to private operators within the policy premise, which ensures diversity
among players in the market.

5.1.3 Competitors
Competitors (Figure 4) define the landscape where competition takes place. As
explained in the review on hypercompetition (pg. 18), in hypercompetitive markets,
the competitors in the marketplace could come from any source and disrupt the
markets. The primary reason why competition exists is to earn rents by maximising
the market share. The competitors in such markets are equally resourceful and hence
they try to use these resources to build competitive advantage. Such efforts however,
are made redundant because of innovations that take place in the marketplace. These

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innovations do provide for temporary advantages but do not allow long term
advantage.

Figure 4: Competitor - Strengths, Strategies and Objectives

Competitors

Strengths Strategies Objectives


 All players who  Innovate to build  Increase profits
constitute competition competitive
have – resources, advantage
knowledge and talent.
 Bring innovation to
market to build
competitive advantage.

5.1.4 Customers
The customers (Figure 5) in the regulated environment because of competition benefit
the most. Multiple competitors in the regulated environment results in excessive
competition because all participants in the market want to own the customer (Prahalad
and Ramaswamy, 2004). The customer is, thus, in a position to bargain which helps to
bring the prices down. While the prices are down, customers also look for stability and
scale in the supplier. When the supplier has scale and multiple businesses, by sticking
to one supplier the customer saves time and money – the switching costs (Klemperer,
1995) and therefore an organizational investment in one supplier makes it cheaper and
removes administration work and cost associated with multiple vendors.

Figure 5: Customer – Strength, Strategies and Objectives

Customer

Objectives
Strength Strategies  Value for money
 Size (The ability to  Encourage price-  Easier administration
spend the money) wars to identify low  Savings on administration
cost supplier cost
 Savings on switching cost.

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While sticking to single supplier is easier for the customer, the supplier also gains
degree of power over their customer (Klemperer, 1995). It is this power that suppliers
in the market look for as it allows them to lock-in customer. Even though customer is
aware of supplier motives, it encourages price wars to identify the least cost supplier.

Because radio is a broadcast medium, the customers who advertise are different from
the listeners who constitute different category of customers. As explained in the
findings section, listenership helps in attracting advertisers, which in turn influences
the paying customers – the advertisers. The radio stations therefore lay more emphasis
on owning a few large customers who spends more money than many small customers
on whom the firm would be spending more efforts, the competitive efforts to attract
customers intensifies. The customers, by virtue of their size, are therefore able to
influence the nature of competition.

5.2 The nature of competition


The various constituents described in previous section define the competition, which
is described through the diversification framework (Figure 6) discussed in this section.
The diversification into radio complements the existing business of media houses
(business groups), such as newspaper, magazine, etc., as it adds another revenue
generating channel. The diversification is congruent with the long term growth and
risk mitigation strategy because of slowdown experienced in the primary business. It
has resulted in creation of economies of scope where radio companies utilise the
parent‟s knowledge and skills in other media industries such as Television,
Newspaper, etc., in increasing sales. During the sales, the firms try to leverage these
skills and assets. These other media assets act as lucrative proposition for the
advertisers because they get the value for money for their spend by getting a larger
audience and for the media houses it represents a customer lock-in because it
monetises all possible outlets that it operates.

Because license represents a regulatory requirement, the regulatory environment acts


as both – a catalyst and an inhibitor at the same time. Acting as a catalyst it promotes
the firms who have crossed the regulatory barrier to access and earn rents from the
markets. Once the regulator has established the markets, it reduces its role to –
maintenance and development of the environment and leaves the players to
themselves. It acts as inhibitor because it erects huge barriers to entry for players who

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do not have access to large resources. Small players are able to cross the barrier in the
small markets only where the potential to earn rents is limited. In these markets, the
big players also compete, leaving little rent seeking opportunities for small players
because bigger players can leverage their strengths from other markets. The regulator,
thus, does not allow players who do not have adequate resources to benefit the market.
It can be argued that through such a role, regulator does not act neutral in the market.
On one hand it wants to foster competition and diversity by bringing in small players
into the market and on the other it erects huge entry barriers that marginalise small
players.

The players, once they cross the regulatory barrier, find the entire market for
themselves. They develop the market to maximise their rents so as to seek an early
return on their investment. The development, including competition, is keenly
watched by the regulator who ensures that market development benefits all, including
the customers and the players. The licensing barrier, however, works only to the
extent of keeping new players at bay. If new players find rent making opportunities in
the market, and the new player is capable of disruption in terms of resources, talent,
and know-how, then the existing players compete with this new player as well. This
implies that competitive advantage for existing players is not sustainable in oligopoly
on the basis of entry barriers as new players, who are resourceful, can overcome such
barriers easily. The non-sustenance of competitive advantage in oligopoly answers the
first research question, which is –

Is competitive advantage in an oligopoly, where competitors limit competition


to share the economic rents, sustainable on the basis of barriers to entry?

Unless the market is small, characterised by both – the small and the big players, the
markets are characterised largely by large players. The large players are nearly similar
in size and capability and have access to media house‟s resources. It is also observed
that there is little or no differentiation among players in the market. Such markets
witness fierce competition. Each player tries to outdo the other and differentiate by
bringing in disruption through innovation, to capture maximum market share. The
innovation benefits the customer as it lowers the overall cost to them but leads to price
war among firms, who compete to capture the market and achieve leadership. The

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characteristics of such markets are price wars, marketing innovations, excessive and
intensive branding, content innovation, and innovation in content delivery.

It was also observed during the study that barriers create an artificially closed
environment where each player tries to maximise its gains. Because the players have
similar capability, the players try hard to differentiate, and the more they try the
differentiation becomes harder to achieve. Each player strategizes to destroy the
advantage achieved by the competing firm resulting in a deadlock. The lack of
competitive advantage to firms in such markets because each competitor destroys the
other‟s advantage, can be explained by hypercompetition as discussed in literature
review but not by traditional theory, which suggests that regulatory barriers are long
term advantages for the players in this industry. As firms strategise to destroy each
other‟s advantage and innovate to build temporary competitive advantage, they
automatically inhibit the growth of long term competitive advantage. The lack of
competitive advantage not explained by traditional theory but by hypercompetition
answers the second and third research questions which are –

Second - Does Porter’s competitive advantage framework explain the lack of


competitive advantage to firms in rapidly changing and evolving markets?

Third - Does Hypercompetition explain the phenomenon of extensive


competition among firms in the emerging market as competitors react
intensively to each other’s moves for temporary advantages?

Such a deadlock in the market brings prices down and as margins get hit, players start
bleeding. The deadlock in the marketplace can only be broken when – (a)
consolidation happens, or (b) weak players withdraw and leave the market for stronger
players.

For consolidation to happen, the players need to buy or enter into alliance with other
players or achieve economies of scale in their operations. However, increasing
operations to achieve economies of scale is subject to regulations. Therefore, as
observed, the most viable option for firms is to enter into strategic alliances where
each player in the alliance plays to its strength and mutually benefits the other. This
enables the firms to achieve both – the economies of scope and scale and leads them

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to achieve their objective of generating maximum rents and achieving customer lock-
in.

Market forces and the competitive pressure also help in breaking the deadlock by
removing weak players from the marketplace. It has been observed many times during
the study that having a resourceful parent is largely useful to survive in the market.
Because weak players do not have access to such resources they are disadvantaged
when they are unable to occupy a leadership position. Such players bleed extensively
before they bow out from the market and thus break the deadlock.

Once the deadlock is broken, the firm achieves its overall objective of diversification.
It generates revenue and reduces dependence on parent‟s group that subsidises it, as
observed in the case of Radio Mirchi. The firm begins to contribute to the parent over
time, mitigating risk of slowdown in primary business. The leadership position
provides the firm with a competitive advantage of locked-in customers enabling it to
charge premium, up-sell and cross-sell the products with linkages across other media
properties – Television, Newspaper, etc. that allow for 360° monetisation across all
customer touch points, leading to firm‟s ownership of customer (Prahalad and
Ramaswamy, 2004), which represents customer lock-in. However, the 360°
monetisation is possible only if the firm has diversified into all businesses that are
related to the primary business. Therefore, the firm needs to build a portfolio of
related businesses that fulfil customer‟s requirement to enable customer lock-in.

It can be concluded for business houses that their ability to provide for resources and
their strategy to mitigate the risks by achieving economies of scale and scope through
diversification allows them to compete intensely in the markets and achieve leadership
position, which enables them to achieve customer lock-in representing a long term
competitive advantage. The achievement of lock-in answers the fourth research
question, which is –

How does the existence of business houses and their diversification into
sectors such as new media and effect the nature of competition?

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Figure 6: Diversification Framework - to achieve Customer Lock-in regulatory market

Business Groups Diversified Firm Regulators


Regulated
Market

Competition in the market

To break the deadlock, firms differentiate


and weed out small players.

Firms create and


The Competitors destroy temporary Price Wars
advantages

Leadership through consolidation or


strategic alliance or withdrawal

Access to larger market to firm

Customer lock-in for business group The Customer

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The way radio industry is evolving despite being regulated, with the regulator‟s help
presents an interesting insight into the future trajectories of other industries that are
gradually being opened. The various firms in the industry, because, they are an
extended arm of the business groups, bring the focus on the business group‟s
diversification attempt

Researchers have focussed on various aspects of diversification including firm‟s


performance (Capar and Kotabe, 2003) and literature has also focussed on identifying
the motives behind diversification, which are financial and synergistic (Amit and
Livnat, 1988). Diversification allows for firm‟s growth and also supports the growth
of the industry in which the firm diversifies. It appears that diversification is a risk
mitigation strategy that enables customer lock-in on behalf of the business groups in
the radio industry.

Figure 7: The steps of diversification in a regulated environment


Regulatory environment

Risk

Customer Lock-in
mitigation
Slowdown risk Competition in the
Firm begins
in primary market for leadership
contribution
business position.
Customer
monetisation

The study observed that the risk of slowdown in the primary business activity prompts
businesses to look for other avenues. A regulated environment presents a safe haven
for groups because the only barrier to entry to such havens is the regulatory policy.
Once that hurdle is crossed, business group can develop and compete in the market to
earn rents. These rents mitigate the slowdown risk in the main business activity
because over a period the diversified arm starts contributing revenue to the main
business activity. In the process, revenue generating activities lead to monetisation of
customer on a new front, the diversified business activity, which is a key step in
customer lock-in. The diversification thus contributes synergistically, allowing firm to
lock-in the customer and, financially when the new business contributes to the extra
revenue generation (Figure 7). Overall, the risk of slowdown in the main business gets
mitigated.

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6 Conclusion
This paper brings an important conclusion to the fore. The competition witnessed in
an industry is a function of the diversification process of business groups. Because
business groups are fundamentally diverse by virtue of their activities in different
businesses, business groups are constantly in a state of transformation. They are
moving up the value chain from being a service provider to solution provider.
Strategies by business groups to move up the chain, helps them to minimize the risk of
slowdown in their primary business by growing the business through customer lock-in
at each touch point of their interaction with their customer resulting in monetisation.

The result of the study indicates that competition in a regulated industry such as radio
is understandable only as part of a larger portfolio strategy of business houses. In
order to compete in such an industry, one has to understand the business model of the
business house not just of an individual firm along with the regulatory environment. In
the long term the identification of areas to diversify becomes fundamental to the
growth of the business as it allows channelling of business group‟s resources for
growth in either related or unrelated industries. This permits development of newer
portfolios that enable value addition for customers and higher revenue for the
company.

The paper identifies various contextual strategic factors such as diversification


strategy of business groups, the regulatory structures that restrict and encourage
competition at the same time and the way firms try and build competitive advantage in
the markets. The literature while explaining certain factors indicates a need for an
explanation about the behaviour observed in such industries. The policy barriers are
significant to enter in, but once inside the industry the search competitive advantage
eludes the players because each player, the being diversified arm of its parent media
house is not constrained by resources, tries to build its own and destroys the
competitor‟s. This leads to hypercompetition and non-differentiation. Players still try
to differentiate but it is understood from the literature that any particular theory under
study at a time explains one aspect but fails to explain the other.

This paper identifies the way firms could diversify in a regulated environment.
However, the process of diversification, even in industries that exhibit similar

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characteristics such as airport maintenance, offshore drilling for oil and gas
exploration, the diversification by business groups is not a simple phenomenon. It is a
complex process that involves identification of – payback period, synergies (related or
unrelated) and, steps involved in diversification that enable firms to minimize and
mitigate various risks by locking-in the customer across group‟s businesses. Though
the process of diversification as explained is generalizable across industries
characterised by regulatory environment, within each industry it may vary
significantly on account of factors that influence those industries.

While, this paper indicates that competition witnessed in such industries is fierce, it
poses important question for managers, regulators and academicians to consider. For
managers considering diversification as a growth strategy, need to consider the
synergistic and financial implications of such a move. They need to first identify what
risks do they want to mitigate and what elements in the value chain they can monetise.
They also need to ask, if they have the resources to compete and the ability to
differentiate with other players in the industry before diversifying. Regulators in such
markets need to identify how far the policies can be successful in evolving a friendlier
ecosystem that ensures diversity in the market and provides for enough rent seeking
opportunities to the corporate who seeks diversification. Regulators also need to
consider if they should be controlling such market and can they leave the market
forces to determine the shape and nature of the competition.

Academic scholars should consider identifying reasons for diversification besides


synergistic and financial. It has been long suggested that organization and regulators
are interdependent on each other (Shaffer, 1995). It will be useful to analyse how far
regulatory controls impact, by accelerating or decelerating, the organizations
responses to competitive forces. Does the way business groups innovate and diversify
suggest a pattern, like the industry or product life cycle (Wasson, 1978; Anderson and
Zeithaml, 1984), would be an important question to consider. Researchers should also
consider if the diversification strategy can be applied to emerging markets other than
Indian that are also characterised by regulatory control.

Why resourceful companies engage in competing activities is an interesting


consideration. The markets turn hypercompetitive when many companies with similar
capabilities enter into the market domain. This erodes their competitive advantage as

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competition increases. It appears that diversification seem to be the main focus for
businesses as they seek advantage by locking-in the customer in growth markets. The
nature of competition in such markets will remain fierce as all companies seek
economic rents and in the process diversify. It becomes clear that competition is a
function of diversification activity of the various business groups.

The question for further research is what attracts businesses to such competitive
markets. Is it a defensive strategy on part of business groups to safe guard their
primary business and/or is it an offensive mechanism to expand into related or un-
related business activities.

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