In late 1999, the top management of Titan Industries Ltd.

(Titan), India's leading watch, clock

and jewelry manufacturer, was surprised when several senior executives threatened to resign.
The threats reportedly came after a long period of employee unrest in the organization. The
reason behind the unrest was the company's decision to increase the level of outsourcing in its
manufacturing activities while limiting production facilities for just assembling purposes.
Titan's Vice-Chairman and Managing Director Xerxes Desai (Desai) quickly issued a statement
stating that the above was not true. However, this was in sharp contrast to his earlier statements
in the media. In an interview to a business magazine1, Desai had remarked, "We will
manufacture only if we can do it faster and cheaper than anyone else in the world." Even as the
company worked towards explaining its strategies clearly to the employees, analysts could not
help remark that Titan was already sourcing a large part of cases and movements, key watch
components, from within and outside India. Moreover, the company had always been sourcing a
variety of raw materials such as stainless steels, tool steels, engineering plastics, tools,
consumables, components and specialty movements2 for its watch manufacturing operations
through vendors spread across 20 countries, mainly in Asia and Europe.

The company's management seemed to have realized that global sourcing of certain components
made better business sense. Media reports even quoted watch industry officials claiming that
companies like Titan had 'no option but to move away from manufacturing and towards trading
in the long run.' This was not a very surprising move as it seemed but natural for the company to
look for cost effective sourcing options at a time when manufacturing seemed rather costly.
Titan's decision was influenced by a host of factors that made the company realize the potential
benefits of outsourcing as a tool for holding on to its position in the Indian watches market.

The liberalization of the Indian economy and the subsequent removal of quantitative restrictions3
on watch imports in the late 1990s, forced Titan to focus more on marketing efforts rather than
manufacturing to retain its competitive edge in the future.

The state-of-the-art manufacturing facility, set up with technical know-how from Europe and
Japan, had an installed capacity of 3.5 million watches per annum. In 1988, the company
established a component manufacturing facility and in 1990, it started a case manufacturing
plant, both located close to the Hosur plant. In 1992, the company integrated backwards to
manufacture step motors. During the same period, it began manufacturing electronic circuit
blocks, used in its watch movements. The Rs 2.7 billion watch and clock manufacturing facilities
were spread over a built-up area of 42,000 square metres.

The company also set up a watch assembly unit with a capacity of 5 lakh watches in Dehradun,
Uttarakhand. In 1992, Titan Watches entered into a joint venture with Timex Corporation of
USA to market Timex watches in India. The same year the company set up a joint venture with
the Economic Development Board of Goa to manufacture electronic circuit boards in Goa in an
effort towards indigenization. Titan set up its fully integrated, Rs 400 million jewellery plant in
1994 over a built-up area of 13,500 square metres in Hosur. The plant had a capacity of
manufacturing four tonnes of gold a year. Due to poor market response the company
discontinued the manufacture of jewelry watches.
The company also set up a separate manufacturing facility for solid link, sheet metal bracelets,
alarm timepieces and premium table clocks in 1995. In 1995, Titan Watches overtook the market
leader HMT by selling 3.2 million watches against the latter's 3 million...

Excerpts

About Outsourcing

Simply put, outsourcing means getting those things done outside that were hitherto provided for
internally. According to the Outsourcing Institute, "Outsourcing is nothing less than a basic
redefinition of the organization. Outsourcing suggests an organization focussed on a few, well-
chosen core competencies supported by long-term outside relationships for many of its other
activities and resources."
An organization can outsource many functions of its day to day operations - manufacturing,
marketing, human resources management, information technology services to name a few. It is
thus a type of make-or-buy decision, wherein typically an earlier 'make' decision is altered to a
'buy' decision. Earlier, when competitive pressure on companies was not very severe, cost
management in manufacturing usually resulted in backward integration and gaining ownership of
a large range of manufacturing and subassembly facilities...

Outsourcing at Titan

Titan's entry into the clock segment in the mid 1990s failed badly because its clocks could not
face the competition from cheaper imports from China. Moreover, the design of Titan's clocks
was also found to be faulty. To correct these problems, the company decided to stop
manufacturing clocks, instead it decided to import them from Hong Kong. The only input in this
'virtual manufacturing ' setup from Titan's side was in the form of design, branding and
distribution. The company converted its clock plant into a plastic watch-manufacturing unit to
make alarm and travel watches. Outsourcing activities were further strengthened in the next few
years due to the problems Titan was facing with the gray market.

The Future

Dash proved to be a runaway success for Titan with 50,000 watches being sold within the first
two months of its launch. The Fastrack range grew by almost 100% in terms of volume and it
established itself as the largest youth brand in the country. The line was extended to the digital
watch market with Fastrack Digital, positioned on the fashion platform. According to company
sources, the success of these two watches was due to the fact that they were outsourced...