Fabindia

MIS Project Report

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 Fabindia

1 Objective ......................................................................................................................................... 4
2 Retail Industry Overview in India .................................................................................................... 4
3 Overview of Fabindia ...................................................................................................................... 5
3.1 Product-mix............................................................................................................................. 6
3.2 Community Owned Companies (CoCs) ................................................................................... 6
3.3 Awards and Recognitions........................................................................................................ 6
3.4 Wholesale exports .................................................................................................................. 7
3.5 Crisil ratings ............................................................................................................................. 7
3.6 Current Revenues and holdings .............................................................................................. 7
4 Competition Analysis ...................................................................................................................... 8
4.1 Organized Retail ...................................................................................................................... 8
4.2 Government backed firms ...................................................................................................... 8
4.3 Mom-and-pop stores and tailoring units ................................................................................ 8
5 SWOT Analysis................................................................................................................................. 9
5.1 Strengths ................................................................................................................................. 9
5.2 Weaknesses ............................................................................................................................ 9
5.3 Threats .................................................................................................................................. 10
5.4 Opportunities ........................................................................................................................ 10
6 Defining Fabindia’s current industry............................................................................................. 10
7 Porter’s framework to analyse Fabindia ....................................................................................... 11
7.1 Bargaining Power of Suppliers .............................................................................................. 11
7.2 Threat of Substitute products or services ............................................................................. 11
7.3 Bargaining Power of Buyers .................................................................................................. 12
7.4 Threat of New Entrants ......................................................................................................... 12
7.5 Rivalry among Existing Competitors ..................................................................................... 13
7.6 Inference ............................................................................................................................... 13
8 CSF Analysis ................................................................................................................................... 13
8.1 Industry level CSF .................................................................................................................. 13
8.2 Firm level CSF ........................................................................................................................ 14
8.2.1 Decrease the threat of new entrants by creating entry barriers .................................. 14
8.2.2 Manage the buyer’s bargaining power by keeping them fragmented ......................... 14
8.2.3 Maintain the product quality and the unique selling propositions (USP) .................... 14
8.2.4 Manage the increasing supplier power ........................................................................ 15
 Fabindia

8.2.5 Maintain Fabindia’s social mission ............................................................................... 15

9 Value Chain Analysis ..................................................................................................................... 15
9.1 Primary Activities .................................................................................................................. 16
9.1.1 Inbound logistics ........................................................................................................... 16
9.1.2 Operations..................................................................................................................... 16
9.1.3 Outbound logistics ........................................................................................................ 16
9.1.4 Marketing and sales ...................................................................................................... 16
9.1.5 Service ........................................................................................................................... 17
9.2 Support activities .................................................................................................................. 17
9.2.1 Firm infrastructure ........................................................................................................ 17
9.2.2 Human resource management ..................................................................................... 17
9.2.3 Technology development ............................................................................................. 17
9.2.4 Procurement ................................................................................................................. 17
9.3 Optimization Linkage ............................................................................................................ 17
9.4 Coordination linkages ........................................................................................................... 18
10 Information Systems currently at Fabindia............................................................................... 18
10.1 Informal systems ................................................................................................................... 19
11 Suggested IS/IT systems ............................................................................................................ 19
11.1 Supplier CSFs: ........................................................................................................................ 19
11.2 Major Customer CSFs: ........................................................................................................... 19
11.3 Major Competitor CSFs: ........................................................................................................ 20
11.4 Our recommendation for new IS/IT systems ........................................................................ 20
11.4.1 Downside of suggested IS/IT systems ........................................................................... 21
12 Conclusion ................................................................................................................................. 22
13 Appendix ................................................................................................................................... 22
13.1 Data Sources ......................................................................................................................... 22
 Fabindia

1 Objective
Objective of this report is to study a company called Fabindia, which has a very
interesting business model. The following things will be covered in this report

• An overview of the Indian retail industry

• An introduction to Fabindia organisation, including its business model
• Competition analysis, SWOT analysis, defining Fabindia’s industry.
• Applying the Porter’s five forces model to the identified industry
• Identifying industry level CSFs for the identified industry
• Identifying the firm level CSFs for Fabindia
• Describing Fabindia’s value chain
• Describing the current IS systems used by Fabindia
• Identifying CSFs of Fabindia’s suppliers, customers and competitors
• Identifying what new IS systems can Fabindia use, Pros and cons for these
• Conclusion

2 Retail Industry Overview in India

Indian retail is a booming market. Over 4 million outlets exist in India and only 4% of
these outlets are larger than 500 square feet in area. Retail in India can largely be
divided into organized and unorganized sectors. Organized retailers are licensed
retailers, who are registered for sales tax, income tax, etc. These include corporate
backed hypermarkets and retail chains, and also the privately owned large retail
businesses. Unorganized retailing, on the other hand, refers to the traditional formats
of low-cost retailing, for example, the local kirana shops, owner manned general
stores, convenience stores, hand cart and pavement vendors, etc

Retail sales in India currently stand at 353 billion USD and are expected to rise to
543 billion USD by about 2014. The compounded annual growth rate is about 18%,
both as a result of fast economic growth of India and the easy availability of credit.
The retail market accounts for more than 35% of India’s GDP and this tells us about
the importance of this sector.

Foreign Direct Investment (FDI) up to 51 per cent under the Government route is
allowed in retail trade of Single Brand products, according to the Consolidated FDI
Policy document. As a result single brand stores like Gucci etc are expected to enter
India.

In 3 out of the last 4 years India has been ranked as the best destination for retail
investment by AT Kearney in its Global Retail Development Index (GRDI).

Most Indians shop in open markets and millions of kirana stores. Organized retail
such supermarkets accounts for just 4% of the market as of 2008, though the share
of organized retail is expected to increase to 15-18% by 2014. Regulations prevent
most foreign investment in multibrand retailing. Moreover, over thirty regulations
 Fabindia

such as "signboard licences" and "anti-hoarding measures" may have to be complied

before a store can open doors. There are taxes for moving goods from one state to
another, and even within states.

Because of the attractiveness of this market, a lot of big Indian companies have
entered the retail space. Reliance (Reliance Fresh), Tata (Westside, Croma) and the
Aditya Birla Group (More) have already entered the retail space. Foreign giants like
Walmart, Carrefour are also expected to join soon, depending on Government
regulation. Walmart has tied up with Bharti retail (a part of the Bharti group) to enter
the Indian retail space. They have already opened 3 cash-and-carry joint ventures in
India, and plan to open at least 15 outlets across the country in the next three years.
FDI in cash-and-carry is allowed as long as it is a wholesaler business and does not
affect the kirana stores. Metro AG of Germany has also setup a similar store in
Bangalore. Tesco also has a back office in Bangalore and plans to toe up with the
TATA’s. Pantaloon Retail (India Ltd), a part of the future group, is a big player in the
organized Indian retail industry with a chain of stores called Big Bazaar, Food
Bazaar etc. The Future group is headed by Mr Kishore Biyani, a man largely credited
with changing the face of modern retailing in India.

3 Overview of Fabindia
Fabindia was founded by John Bissell, a United States national. He had come to
India in 1958 on a Ford foundation sponsored program to advise the government-run
Central Cottage Industries Corporation (CCIC). John Bissell earlier worked as a
buyer at Macy’s in New York and knew about the demand for novel, high-quality
cotton fabric in the U.S market. He did not know any Indian language, but travelled
extensively in India and met weavers in several Indian states. Most of these weavers
were very talented but had very little market knowledge. He was moved both by their
skills and by poverty in general in India. He wanted to help the rural artisans in India.

FabIndia Inc. was incorporated in 1960 as an export house in Delhi, and its office
was located in John Bissell’s home. Fabindia was founded with the strong belief that
there was a need for a vehicle for marketing the vast and diverse craft traditions of
India and thereby help fulfil the need to provide and sustain employment. According
to William Bissell: “In addition to making profits, our aims are constant development
of new hand woven products; a fair, equitable, and helpful relationship with our
producers; and the maintenance of quality, on which our reputation our rests.” To
this day Fabindia remains committed to this philosophy.

Fabindia sold textile based home furnishings in the 1960s, and sold almost
exclusively in the overseas market. Their prime, rather the only customer at that time
was UK Habitat, an interior designing firm based in Britain.

Fabindia opened its first retail store in Greater Kailash, New Delhi, in 1976. Fabindia
Overseas Pvt. Ltd. was born then. Fabindia is a registered private limited Indian
 Fabindia

company. Today it has 118 stores spanning 44 cities and 5 countries. Fabindia has
114 stores in India, one store each in Rome (Italy), Dubai (UAE), Doha (Qatar),
Bahrain, and a US based office which wholesales Home textiles to various stores
across US.

Fabindia now offers online sales through the Fabindia website

http://www.fabindia.com catering to 33 countries around the world.

3.1 Product-mix
The major portion of Fabindia’s product range is textile based. Non- textile
introductions to this range are Home Products (introduced in October 2000), Organic
Food Products (introduced in July 2004) & Fabindia’s range of authentic Personal
care products (introduced in March 2006).

The textile-based product range includes ready-to-wear garments and accessories

for men, women, teenagers and children; bed, bath, table and kitchen linen; floor
coverings, upholstery fabric and curtains. Cotton, silk, wool, grass, linen and jute are
the basic fibres used. The Home Products range carries furniture, lighting, stationery,
tableware, cane baskets and a selection of handcrafted utility items. Fabindia
Organics carries several types of cereals, grains, pulses, spices, sugar, tea, coffee,
honey, fruit preserves and herbs. Fabindia's range of authentic Personal care
products includes soaps, shampoos, hair oils, pure oils, moisturisers, body scrubs,
face packs, hair conditioners & special skin care products.

As of 2006 garments accounted for 70% of Fabindia’s revenues. The rest of the
revenue came from home products and organics.

3.2 Community Owned Companies (CoCs)

Fabindia links over 40,000 craft based rural producers to modern urban markets,
thereby creating a base for skilled, sustainable rural employment, and preserving
India's traditional handicrafts in the process. Fabindia promotes inclusive capitalism,
through its unique COC (community owned companies) model. The COC model
consists of companies, which act as value adding intermediaries, between rural
producers and Fabindia. These are owned, as the name suggests, by the
communities they operate from; a minimum 26% shareholding of these companies is
that of craft persons. Fabindia has created 35 such companies till date.

3.3 Awards and Recognitions

Fabindia was awarded ‘Best Retail Brand’ in 2004 by The Economic Times of India.
In 2004, Fabindia was featured as part of a CNBC special TV report on India.
In 2008 Fabindia was named one of India's Top Marketers by Business Today,
India's leading business magazine.
In 2009 the company was featured as an example of Game-changers by Business
Week the international business magazine. In 2010 the company has been
 Fabindia

recognized as one of the most innovative models by a Monitor-Business Today

survey conducted across industry.

3.4 Wholesale exports

Fabindia exports to over 33 countries worldwide, to wholesalers as well as retailers.
Products include home linens as well as garments.

3.5 Crisil ratings

In 2010, Indian rating agency CRISIL has rated Fabindia AA- with a stable outlook.
The ratings reflect the company’s established presence in the ethnic and handicraft
retail segment, efficient supply chain management and a robust low financial risk
profile. These strengths are partially offset by Fabindia’s exposure to risks related to
concentration of its revenues in the garment segment. CRISIL will change the rating
to “positive” from “stable” if Fabindia is able to reduce the concentration in the
garment’s segment.

3.6 Current Revenues and holdings

The data for current revenues of Fabindia is not available, but it is expected that it
would be close to 8.6 billion or Rs 860 crores annually. Fabindia has set a scorching
pace of growth in 2000’s after it decided to concentrate more on a retail strategy than
an export strategy. Its revenues have increased from Rs 386 million in 2002 to an
estimated Rs 8.6 billion today. Profitability throughout this amazing run has been
maintained at 6% (at least till 2006, later data not available).

FabIndia has grown mostly through internal accruals and the majority shareholder is
still the founding family. Other shareholders include business associates, directors,
employees and former World Bank president James Wolfensohn's investment fund,
WCP Mauritius. WCP bought a 6% stake in FabIndia in 2007, at a price which
valued the firm at around $180 million, or Rs 8.1 billion.

In 2009, Fabindia acquired a 25% share in EAST (earlier called Anokhi), a company
that has established a niche in the UK fashion market through its focus on retailing
garments for women in natural fabrics and with a distinct eastern influence.
According to the terms of the purchase, Fabindia has an option to acquire the
balance shares in a phased manner over the next 2-3 years. The company has 77
outlets, which include selling points through 18 John Lewis stores. This network will
help Fabindia sell its garments in UK. EAST has annual revenues of £30 million, or
(approx) Rs 2.1 billion.

Currently Fabindia is working with about 40,000 craftsmen all over the country, and
is expanding this base fast. 90% of Fabindia’s revenues come from India.
 Fabindia

4 Competition Analysis
In a nutshell, Fabindia faced competition from all quarters. The competitors are
broadly classified below:

4.1 Organized Retail

Retail Stores such as Shopper’s Stop, Pantaloons, and Globus pose major threat to
Fabindia. Their strengths and weaknesses are listed below:

Strengths: These retail stores have pan-India presence with a trained man-power
advantage. Their supply chain is robust and product development life cycles are short. They
charged very competitive prices for their high quality products. To increase pressure on
their competitors, they have increased their fixed cost in high marketing communication
expenditure that was difficult for their competitors including Fabindia to imitate.

Weaknesses: Their products were not diverse and they usually produced goods
that were fads. Most of the products were undifferentiated and the quality of the
handmade goods was not at par with Fabindia.

4.2 Government backed firms

This included Cottage Industries Emporium and Khadi Gram Udyog, both backed by
state government department.

Strengths: Due to government backing through subsidies and international trade

facilitation, they enjoyed competitive advantage.

Weaknesses: Stores were not maintained properly and consumers do not like their
ambience. Moreover, the product differentiation was missing because these firms
specialized in standardized products.

4.3 Mom-and-pop stores and tailoring units

These are the local community stores.

Strengths: These are deeply embedded in local communities and hence very
effective in addressing wide geographical variations. They can provide a high degree
of customization to its clients.

Weaknesses: They don’t have any brand equity and their customers are not loyal.
Their source of finance mostly comes from their own pool; as such they don’t have a
secure finance. Moreover they lack skilled manpower to help them grow.
 Fabindia

5 SWOT Analysis

Strengths Weaknesses

• Differentiable products – • No specific promotions

Indianness in fabric
• Brand recognition and loyalty
• Diverse product mix
• Strong supplier relationship
• In-house manufacturing
• Autonomous & accountable
employees
• Different categories of stores
• Customer Loyalty
Threats
strategy
• Limited channels of business
• Delays from suppliers
• Inconsistent quality of
products
• Inconsistent service in stores
Opportunities

• Substitute producing • In store merchandising &

competitors navigation
• Entry of foreign brands and • Promoting e-business
growth of Indian brands channel
• Not in touch with Fashion • Organic foods market
Trends • Customer acquisition
• Customer tastes changes strategies

5.1 Strengths
Fabindia fabric has a uniqueness of Indian fabric or styling that is easily identified by
the customer as ethnic wear. This leads to a very high brand recognition and
connects with the customer value. It has presence in diverse product lines such as
garments, furniture, furnishing and upholstery, body care, organic foods and the very
recently introduced jewellery line. Due to its variety of stores, it can reach to different
categories of customers.

5.2 Weaknesses
There is no promotions strategy to boost sales to even reach its potential levels. The
company is too dependent on suppliers which often introduced difficulty. In the past
there have been incidences when due to delay in sending supplies for winter
garments manufacture, inventory was carried over to the next year and suppliers
were not made to share the damage. Delay in delivery and inconsistent quality
frustrates customer who may not have switched otherwise. The stores are owned by
Fabindia with a centralized hub model of supply chain management.
 Fabindia

5.3 Threats
With the change of government laws, foreign brands may enter very soon and can
pose a significant threat to Fabindia. Domestic brands such as Shopper’s stop etc
are also knocking its doors. To meet these threats, Fabindia should innovate and
diversify into different product categories. It should be nimble and responsive to
changing tastes of its customers. It needs to ensure that the customer service
provided and the quality of products is consistent, which may be difficult to achieve
given its unique supply chain and company’s mission.

5.4 Opportunities
Merchandising within stores is still in a rudimentary stage. The shopper navigation
can be greatly enhanced by focusing on the store layout and appropriate
merchandising techniques which succinctly create individual product areas. There is
great opportunity to grow along with the fast growing organic foods department. Out
of the total customer base for Fabindia, a high percentage comprises repeat
customers. This leads to an inference that Fabindia can focus on customer
acquisition strategies.

6 Defining Fabindia’s current industry

The retail sector in India is on an explosive growth path, as mentioned above. But is
the retail garment sector really a competitor to Fabindia? The basic fibres used by
Fabindia are Cotton, silk, wool, grass, linen and jute. The retail garments stores in
India sold a mix of synthetic and cotton and none of them focused on traditional
weaves and prints in the way that Fabindia did. Fabindia’s unique selling point lay in
its sourcing systems. Customers who came to Fabindia knew that some part of every
Fabindia garment was handmade and this was the value proposition that Fabindia
offered. Other retailers mentioned above did not offer this value proposition and
hence, they cannot be called direct competitors. Of course this is situation at this
point in time, but the deep pocketed competitors could at anytime enter the markets
of Fabindia and cause havoc. So Fabindia needs to be cautious of them.

At present the real, existing competitors of Fabindia are the other retailers who
operate in the niche area of traditional weaves and prints for the garment products,
and the players in the organic food industry (Godrej and Pantaloon are the threats in
Organic food industry).

Examples of the current competitors in the garments segment for Fabindia are
Anokhi and the government supported Khadi stores and other such retail outlets
which source from the niche suppliers (rural artisans/craftsmen). Khadi stores are
not doing well as they are not managed properly, but Anokhi is doing well. This
industry which sources exclusively from rural artisans/craftsmen and uses only
natural material is the real competitor of Fabindia. In fact Fabindia already has been
able to handle Anokhi as discussed in the Porter’s five forces section below.
 Fabindia

7 Porter’s framework to analyse Fabindia

The industry considered for Fabindia is as described in the previous section (general
retail is not considered as Fabindia’s industry)

7.1 Bargaining Power of Suppliers

In Fabindia’s industry the most important part of the value chain are the suppliers.
The value proposition of the products is derived from what these products are made
of (organic food, handloom textiles etc) and where are these products sourced from
(rural artisans/craftsmen). Fabindia, a part of this industry, sources from these
artisans and has no manufacturing facilities. Anokhi’s business model is almost the
same. It can be argued forcefully that as soon as you take this supply chain away
from these companies, these companies will collapse. Hence, the supplier power
should be huge here. It is important to note here that this supplier base is not a
normal base that can be changed, or new people trained in this fast. It is a very
limited and niche pool of people who operate in this field and this uniqueness makes
them powerful. For any company in this industry the major goal would be to expand,
consolidate the supplier base. It is this supplier base that gives the companies in this
industry their competitive advantage. Fabindia has recently gone to great lengths to
expand and organize its supplier base. As mentioned earlier, it has formed 35
community owned companies in villages to help the artisans. 49% of the equity of
these companies is owned by a Fabindia promoted Microfinance Company called
the Artisan Microfinance. 26% stake is with the artisans themselves and the rest
25% is with financial investors and Fabindia employees.

Interestingly these suppliers, who can be really powerful, come from poor
backgrounds and from villages and are not themselves aware of their power and
hence do not bargain much. So they don’t realise their power. The suppliers are also
fragmented and hence not as powerful as they can be. Hence, currently the
bargaining of supplier’s is low currently, even though it has the potential to
become very high in the coming years. Fabindia is trying to group these suppliers
into small profit making companies or CoCs as described above, this actually might
increase the supplier power. In the long run this might affect the profits of Fabindia
as the suppliers become more powerful, but the other way of looking at it is: Fabindia
is just trying to make the supplier network organised. Currently it is too unorganised
and hence prevents companies like Fabindia from scaling up. This is the gamble
Fabindia is taking as it needs to scale up to be able to compete against any deep
pocketed entrant that enters this industry. So we can infer that companies in this
industry are ready to give up some advantage over the supplier power force to
raise the entry barriers and fight the most powerful force in this industry, the
threat of new entrants.

7.2 Threat of Substitute products or services

Substitutes for Fabindia products are mainly products coming from similar chains like
Khadi and Anokhi. The normal retail ready-to-wear garments industry is not a true
 Fabindia

substitute. Similarly for Anokhi products, the substitutes will be Fabindia products
etc. The threat of substitutes in this industry is low, the probability of some new
machine made product that is a close substitute of handmade stuff coming is not
very high at this moment.

7.3 Bargaining Power of Buyers

This industry plays in a very niche market. These brands have an inherent value
proposition that differentiates them. If buyers do not identify with this value
proposition then the whole business model will collapse. Most of the Fabindia’s
customers are repeat customers. If Fabindia is unable to retain them it will not be
able to sustain its business. To keep the buyers satisfied it is imperative for all firms
in this industry that they maintain the inherent value proposition of their offerings to
the customer and also maintain a very high quality and product mix. Customer’s are
attracted to brands like Fabindia because of the fabric it uses and the way it sources,
but unless Fabindia (or Anokhi) for that matter maintains a very rich, trendy and
fashionable product mix it will not be able to convert the customer’s like into a
purchase. So buyer power in this industry can be high.

All firms in this industry have taken the retail route. For Fabindia for example, 70% of
its revenue comes from Garments, which are almost entirely sold in retail. Hence,
this tells us that the consumers in this industry are fragmented. This reduces the
power of buyers that could have been high. Also, the buyers are not very price
sensitive in this industry, because the strategy is based on differentiation (through an
inherent value proposition) and not on cost advantage. The number of firms in the
industry is also low and their concentration is much higher. Hence, the buyer power
is not as high as it could be in this industry. Still, since the firms know that they need
to keep these buyers satisfied at all times by maintaining a very high quality (which
puts a pressure on costs) and the inherent value proposition of its products, the
buyer power is not low either. In this case, we can term the buyer power as
medium. Because of the nature of the industry, the buyer power will remain
medium unless there is a significant increase in buyer concentration or a
decrease in industry concentration, either of which is unlikely.

7.4 Threat of New Entrants

This is a very credible threat in this industry, and hence this force is powerful.
What if the big retail players enter this industry: say Tatas, Reliance, future group?
This industry is growing at a very fast pace 2288% growth for Fabindia in 2000s and
a similar figure for Anokhi(East), there is every incentive for new entrants to come in.
Will Fabindia and the rest be able to compete with these deep pocketed giants? This
threat keeps Fabindia, Anokhi and others in check. Fabindia’s aggressive growth
targets in 2000’s reiterate this. Fabindia was ready to go for an aggressive increase
in revenues, but did not have profitability targets, why? They were basically trying to
reach a critical mass that would prevent these giants from taking over – if they ever
entered. They were reacting to this very credible force. Fabindia wanted to expand
 Fabindia

and organise the most important component of its value chain – the suppliers. This
was a way of raising the barriers to entry and Fabindia was able to do this very
successfully in the last decade. This threat of new entrants forced the expansion
plans of Fabindia and hence drove down the profitability. This move from Fabindia
was necessary and William Bissell, Fabindia’s CEO made a bold decision. But now
that Fabindia has gained the critical mass and consolidated the most important
component of this business model, the supplier base it is in a good position to
compete even if these deep pocketed potential entrants enter the market.

7.5 Rivalry among Existing Competitors

This is a very niche segment and the competitive rivalry is not intense. Since
the products have an inherent value proposition, it is quite possible that the 2 or 3 big
players in the market like Fabindia, Anokhi and Khadi all make good profits.
Government supported Khadi stores are not well managed, they neither have a good
product mix nor the right ambience in their stores and hence they are not doing well.
On the other hand both Fabindia and Anokhi are doing very well. Fabindia has
increased its revenues in 2000 to 2010 period from Rs 360 million to Rs 8.6 billion,
or 22 times in 10 years! Anokhi also is on an explosive growth path, with annual
revenue in Jan 2009 of 30 million Pounds, or Rs 2.1 billion. Anokhi was recently
renamed to East and Fabindia acquired 25% in East. It sells its ethnic women’s wear
through 52 exclusive outlets in upmarket London and also through the high-end
department store John Lewis. The competitive rivalry was already less and with
this Fabindia has really established as the number one player in this niche
market.

7.6 Inference
• Bargaining power of suppliers: Currently Low, but has the potential to
be high. Firms in the industry are also ready to make this medium to high to
counter the most important force in this industry, the threat of new entrants.
• Threat of Substitute products or services: Low
• Bargaining Power of Buyers: Medium
• Threat of New Entrants: High, and the most powerful force in the industry
currently. This threat needs to be countered properly.
• Rivalry Among Existing Competitors: Low

8 CSF Analysis
8.1 Industry level CSF
Industry level CSFs as we see from the Porter’s five force analysis

• Decrease the threat of new entrants by creating entry barriers

• Manage the buyer’s bargaining power by keeping them fragmented
• Maintain the product quality and the unique selling propositions.
 Fabindia

• Manage the increasing power of suppliers

8.2 Firm level CSF

The industry level CSFs and some unique Fabindia CSFs are

8.2.1 Decrease the threat of new entrants by creating entry barriers

• Fabindia should do this by organizing its suppliers into CoCs as it is already
doing and by running those CoCs well. This would help Fabindia both expand
its supplier base and consolidate it. Suppliers are the most important part of
the value chain for this industry. Once you secure them, a very high entry
barrier is created. The suppliers are also limited in numbers, so create the
critical mass as soon as possible. Fabindia did this with its aggressive
expansion policy in 2000s. Once this is done, even the most deep pocketed
new entrants will find it very difficult to enter the market.
• Expand aggressively to be able to sell the increased supply, once the supplier
base is expanded and consolidated and also to gain the critical mass to
discourage any potential new entrant. Fabindia did this exceptionally in 2000s
when it grew by 2288%.
• Try and consolidate the industry even further: Fabindia is doing well, but
so is Anokhi. What if the big players come and buy out Anokhi? Fabindia
should try to pre-empt this by trying to buy Anokhi. Fabindia did this by buying
25% of Anokhi with an option to buy the rest in the next 3 years. This would
create a big entry barrier, as any new entrant will then need to start from
scratch as these two companies are the only large, credible players in this
industry.

8.2.2 Manage the buyer’s bargaining power by keeping them fragmented

• The buyers in this industry are important: but their power should be kept to a
minimum, otherwise the profitability will be hit. So for this industry its good if it
plays in the retail market more than in institutional markets as this would help
keep the buyers fragmented. No one buyer will be big enough to bargain.

8.2.3 Maintain the product quality and the unique selling propositions
(USP)
• This industry has an inherent value proposition associated with its products,
and hence does not play on cost. It is vital that this is maintained, so that
profitability of the industry is not affected. It is very important that Fabindia too
maintains its product quality and its USP, by sticking religiously to the natural
fibres and to its suppliers.
• To able to charge a premium for the value delivered to the customer, Fabindia
should maintain not just the quality of its product mix, but also the quality of its
 Fabindia

stores, its ambience and its concepts (This would help maintain brand image,
which is a vital asset in this industry)

8.2.4 Manage the increasing supplier power

• Because of the nature and current state of the industry, it is absolutely vital to
create high entry barriers against possible new entrants. For doing this
consolidating (otherwise the deliveries are unpredictable and often delayed
and hence fast expansion of firms is not possible) and expanding the supplier
base is vital. But this will certainly increase the supplier power and hence
needs to be managed properly.
• Fabindia has a mission to help the artisans grow and this move will actually
help artisans (suppliers) grow, but even other firms should maintain very good
relations with the suppliers, as suppliers are the most critical assets in this
industry. This trade-off of increasing supplier power is essential here to tackle
the most disruptive force for this industry: threat of new entrants.

8.2.5 Maintain Fabindia’s social mission

• This is a unique CSF for Fabindia besides the industry level CSFs: Fabindia
has a driving mission to help grow the Indian artisans by giving them
sustained employment. Not all firms in this industry have this mission. For
Fabindia, until it succeeds in doing this it cannot be termed as a success.
• Hiring people who believe in the mission: Along with the explosive growth,
Fabindia will feel the shortage of skilled manpower. Here, it is very important
that Fabindia hire people who believe in Fabindia’s mission. That is the only
way to make sure that the mission is met in the long run.

Fabindia is already doing a wonderful job in this by opening the CoCs and providing
the artisans a stake in those. It should maintain such relations with the artisans and
help them grow.

9 Value Chain Analysis

Porter suggested that the activities of a business can be grouped under two
headings: primary activities, those that are directly involved with the physical creation
and delivery of the product or service; and support activities, which feed both into
primary activities and into each other. Support activities (e.g., human resource
management, technology development) are not directly involved in production, but
have the potential to increase effectiveness and efficiency.
 Fabindia

9.1 Primary Activities

Primary activities include physical creation of the product, its sale and transfer, and
its after-sale assistance. These are the following:

9.1.1 Inbound logistics

This involves handling of raw material such as thaans from weavers and organic
products from suppliers. Thaans are coded based on the fabric’s characteristics such
as colour, print, length and the information maintained in a computer database. They
are then sent to the central warehouse. Tailors are then issued fabric based on the
requirements. For the case of furnishings, where further processing is not required
they are moved to the bins of the respective stores.

9.1.2 Operations
The raw materials are then sent to fabricators, essentially tailoring units, for them to
create merchandise (apparel as well as home accessories like cushion covers). This
also includes rework if the quality and the requirements are not met by suppliers.

9.1.3 Outbound logistics

Fabindia maintains a comprehensive central online catalogue with the details and
prices of all Fabindia products. Store managers order merchandise from this
catalogue based on the category of their stores – premium, regular and concept
stores.

9.1.4 Marketing and sales

Fabindia never advertises its products as it believes in word of mouth and depended
on repeat customers. It sells goods only through its own stores. The stores have a
distinct ambience situated in convenient locations to create a unique customer
experience. A mystery shopper program monitors sales and enabled management to
control the quality of the sales process.
 Fabindia

9.1.5 Service
This includes the service provided by salesmen inside Fabindia stores both in terms
of selection of garments and billing. Mystery shopper program also monitors the
service offered by Fabindia.

9.2 Support activities

Support activities buffer primary activities and each other by providing purchased
inputs, technology, and human resources. These are the following:

9.2.1 Firm infrastructure

The management encourages an open culture and an entrepreneurial spirit. Each
store manager is given sufficient autonomy to order goods and meet operational
expenses out of its allotted budget. Store managers use macroeconomic factors and
their knowledge of available merchandise and local tastes to arrive at stocking plans
for their stores.

9.2.2 Human resource management

Formal HR policies and systems encouraged formalization of the norms, culture and
mission of the organization. Fabindia HR believed in inclusive growth and hence
shares of the Community Owned companies were also given to Fabindia employees.
Besides, HR department helped in meeting the company’s CSF of sustaining the
social mission, by hiring employees who understood the mission.

9.2.3 Technology development

These are the activities dealing with information processing, development and
securing of knowledge in the organisation. Fabindia maintains a central database
containing all the basic information about the products. This is shared across
organisation. Fabindia is increasingly adopting new technology like its state of the art
online store which serves 33 countries across the global. This was shared across
organisation.

9.2.4 Procurement
Fabindia maintains an extensive supply chain network of 15,000 weavers and
artisans spread over rural India who practised traditional cotton and silk weaving and
printing techniques. Fabindia works on trust and understanding with its suppliers and
even helps weavers secure loans from banks. This ensures their loyalty which
translated into life time suppliers
Out of these activities, outbound logistics, marketing and sales are very important.
Given the unique mission of Fabindia and the consequent supply chain, procurement
becomes very important. Fabindia can identify and exploit linkages among many of
its interrelated value activities.

9.3 Optimization Linkage

This type of linkage involves tradeoffs as one activity affects the cost or effectiveness
of other activity in an inverse manner. Some of the linkages that can be explored:
 Fabindia

• Linkage between Human resource and Services activity: More expenditure by

Human resource department would result in the recruitment and training of
better workforce. This will in turn result in better service to the consumer.
• Carefully choosing suppliers will result in reliable on time delivery of goods.
• Investment in the stores would attract more customers that would increase the
sales.

9.4 Coordination linkages

It does not involve tradeoffs and both the value activities complement each other.
Few are mentioned below:

• On time delivery requires coordination between outbound activities and sales.

• Smooth sales also require finished goods to be available continuously. This is
possible when the operation is efficient.

10 Information Systems currently at Fabindia

• Online catalogue (one centralised database to maintain a comprehensive list
of products): Fabindia maintains one centralised database with a
comprehensive list of products. With the 115 stores that Fabindia currently
has, this is absolutely essential to make sure the consistency of information
across the organisation.
• Mystery-shopper program: This program monitored sales and enabled
management to control the quality of sales process and customer service.
This was an information system that helped management get a regular
feedback on the performance of the stores in terms of quality of customer
service and sales.
• Sales information from Store manager: Store Managers were encouraged to
be entrepreneurial. A budget was given to the store manager and they had to
manage their product mix and operational expenses within this. The store
managers regularly placed orders for Stock Keeping Units(SKUs) that they felt
were about to finish. This information system helped Fabindia in replenishing
the stocks and also gave the management the idea as to which trends are
selling the most at any given point in time. This ensured that the product mix
displayed at the stores consisted of all that buyers were looking for.
• Fabindia stores have a computerised billing section and a credit card swiping
system where all major credit cards are accepted. This ensures that the billing
is accurate and fast.
• Current Online store – ships to 33 countries in the world. The primary channel
used is the website of Fabindia www.fabindia.com . The site is a huge
information system. A lot of members are already registered members. Here,
you can login and buy any Fabindia product that you like and get it shipped to
the address of your choice in the 33 countries that Fabindia currently serves.
The secure online payment gateway used for transactions is Citibank
gateway. The site is Verisign secure and uses SSL for encryption.
 Fabindia

10.1 Informal systems

• Referral for new suppliers: Fabindia expands its supplier base using referrals.
This helps Fabindia in growing reliably at a lesser cost and using lesser time.
Once a person is referred he is given small assignments to check the
performance and once sure of the ability large orders are given to the referred
person. This is currently an informal information system as there is currently
no referral management system. In future, Fabindia can think of formalising
the referral process more. This would certainly help in expanding its supplier
base faster.

11 Suggested IS/IT systems 1

We shall first look at supplier, customer and competitor CSFs and then try to suggest
which new IT/IS systems might be beneficial to Fabindia.

11.1 Supplier CSFs:

Fabindia has a unique supply chain. The CSFs for suppliers would be:

• Arrangement of funds: Suppliers to Fabindia are poor and hence need capital
to sustain their production. Fabindia helps suppliers take loans from banks by
guaranteeing to buy all that the suppliers produce. Besides, Fabindia has also
setup a microfinance institution to help raise funds for the artisans.
• Ability to sell what they produce – Fabindia helps in this by promising to buy
the entire produce of its suppliers.

11.2 Major Customer CSFs:

• Good Product mix: Fabindia’s products come with an inherent value
proposition. Still the buying decision of customers is influenced more by the
product mix. If the customer finds that the product mix at Fabindia is not the
latest then the sales will dip and Fabindia will not be able to retain its
customers.
• Good Quality of product and services: Fabindia brand has grown as a result of
the unique value proposition that Fabindia offers and the kind of quality it
promises. Be it the quality of its products, or the quality of its stores, or the
customer service. For the customer the quality is very important and if the
quality is not maintained, Fabindia’s sales and growth will be affected.
• Good value for money: The customer should feel that she is getting good
value for money when she buys from Fabindia. Fabindia maintains three kinds
of stores: premium, regular and concept. It is very important that Fabindia

1
We visited a Fabindia store at Kolkata, near South City Mall and enquired them about the IS/IT infrastructure
in place. We could not get complete information about these systems and hence some of the suggested new
IS/IT systems might already exist in Fabindia.(We assume they don't)
 Fabindia

designs its pricing in a way that the customer feels that she is getting more for
less. The customers for Fabindia are not very price sensitive and hence
Fabindia is able to charge a premium, but Fabindia should make sure that
price is not kept at a level where the customer feels that she is getting less for
more.

11.3 Major Competitor CSFs:

Competitor CSFs are the same as Fabindia’s CSFs, except for the mission part. As
we are not sure if any of those chains has a similar mission. So the CSFs would be

• Increase entry barriers to the industry by strengthening the supply chain.

o A part of this would be to try and consolidate the industry further, lest
deep pocketed new entrants enter and buy out a rival in the industry.
For this each competitor in the industry with long term goals would be
looking at acquisitions as of now.
• Maintain their product quality and USPs, strengthen brand image
• Keep Buyer’s power medium by keeping the buyers fragmented
• Manage the growing supplier power by having a very healthy relationship with
the suppliers.

11.4 Our recommendation for new IS/IT systems

By looking at the Supplier, Customer and Competitor CSFs we have tried to identify
the potential IS/IT investments. These investments should help Fabindia’s suppliers
and customers in achieving their CSFs, and should inhibit its competitors in the
industry from achieving their CSFs. The analysis below includes the advantages
of implementing these systems.

• Company-wide ERP and CRM system: Fabindia’s core assets are its
suppliers and its customers. Fabindia is already doing a lot for the suppliers
by setting up CoCs for them and by helping them grow sustainably. By
implementing an ERP package, Fabindia can further help its suppliers.
Fabindia’s suppliers are rural, poor artisans who are not very organised. Many
times they are not able to deliver a consignment on time, or at times they
deliver more than the requirement. This is a problem both for the suppliers
and Fabindia. Once an ERP system is implemented in both Fabindia and the
CoCs that it runs, Fabindia can be more integrated with its suppliers. This
would help prevent this demand and supply mismatch and streamline the
operations further. This will not only help the suppliers meet their CSF but will
also help Fabindia in increasing its profitability.
Similarly, most customers if Fabindia are repeat customers. Fabindia has
grown as a brand and its customers are loyal to it. So Fabindia should
implement a CRM package that would help it in maintaining its relationship
with both the retail and the institutional buyers. A CRM package can really
help Fabindia in converting more leads into sales and also would help it in
 Fabindia

starting membership programs, like the ones run by Shopper stop and other
retailers. These programs would help Fabindia in making its customers more
satisfied by providing a better service. This would both help in meeting the
customer CSFs and also in helping Fabindia retain more customers and thus
directly impacting the profitability (a retained customer is many times better
than a new customer) and revenue.
Also, this will help Fabindia prevent the competitors from meeting their CSFs.
The suppliers in this industry are limited and hence if Fabindia consolidates its
supplier base further, the competitors will have less space to operate in.
• Defect management system: One of the CSFs for Fabindia is to maintain its
product and service quality. Ability to classify and analyse defects in end
products that would facilitate identifying the root cause so that these errors
can be avoided in future is something that can really help fulfil this CSF.
Defects should not be looked at as problems that need to be solved and
forgotten. It is important that the company handle defects faster, better and
store a database of defects seen in the past. This will help in improving quality
further and would lead to better customer satisfaction. So would also help in
fulfilling the customer CSF.
This defect management system should either be built into the ERP system, if
not this should be implemented separately.
• All stores should be networked: this can be helpful if store managers need
to exchange information and to also contact each other on a real time basis.
This might help one store in borrowing merchandise that it has exhausted
from another nearby store. Besides, this would also help the store managers
in seeing which items are selling the most, not just in his store but it other
stores as well.
This would help Fabindia in meetings its CSF of maintain the best product mix
in its stores.
• Investing further in its online store: Through its online store Fabindia sells
to approximately 33 countries. There is a vast opportunity for Fabindia to
expand its reach further through this virtual medium. Fabindia should invest
heavily in its online store so that it is able to handle even more traffic.
Besides, it should study giants like Amazon to find how they leveraged
internet to expand their business exponentially. This is one medium that can
help Fabindia grow to an extent earlier thought impossible.
This investment and the expected growth will help Fabindia meet its possibly
most important CSF in this industry: it will raise the entry barriers for the new
entrants even higher.

11.4.1 Downside of suggested IS/IT systems

• With these IS/IT investments, in general cost will go up, so cost-benefit
analysis should be done before implementation. And a thorough study of
 Fabindia

vendors should be done to make sure Fabindia does not pay more than the
value it receives from these investments.
• For a successful implementation of IS/IT system, the workforce and the
management should be willing to accept the changes brought about by the
new system. The implementation of IT/IS systems such as ERP, CRM
presents a formidable challenge. The company should, therefore, initiate
training and change management exercise to convince the employees and
the management of the adoption of new system. Only if everybody in the
company adopts and starts using the new system, will the new
implementation bring its intended benefits.

12 Conclusion
In the last 50 years Fabindia has grown phenomenally without compromising its
unique mission. As the country’s economy is opening up, Fabindia is going to face
considerable challenges both from its diverse competitor and from its unique supply
chain. Deep pocketed competitors might very soon enter the market and challenge
Fabindia’s growth. To still grow on its set trajectory, Fabindia has to integrate its
value chain with its suppliers and buyers more tightly. The proposed IT/IS system
would enable Fabindia to achieve its goal by enabling easier integration through its
value system.

13 Appendix
13.1 Data Sources
• Primary Data: Visit and phone call to Fabindia stores
1) South City Mall, Kolkata, Shop no. B007A, Lower Ground Floor, 375 Prince
Anwar Shah Road, Kolkata – 700068, Ph: +91-33-40653184, 85,
Email:southcity.kolkata@fabindia.net
2) 536, Main Road, Whitefield, Bangalore - 560066
• Secondary data:
• http://www.fabindia.com
• http://www.businessweek.com/globalbiz/content/oct2008/gb2008101_170582
_page_2.htm
• http://www.indiamarks.com/guide/Fabindia-The-Success-Story/408/
• http://www.dealcurry.com/20090107-Fabindia-Acquires-25-In-EAST.htm
• http://business.outlookindia.com/article.aspx?261378
• http://www.wikipedia.org