IIM ABC Consulting Review
2010, Volume 3

Audire is a joint initiative of the student consulting clubs at IIM Ahmedabad, Bangalore & Calcutta.


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The IIMC Consulting Club aims to provide opportunities for the students to participate in live consulting projects. The club arranges various networking events to enable students to interact with the industry. Lastly, it organizes consulting games, quizzes and case competitions to enhance the skills of the students indirectly preparing them for the consulting industry. The club can be reached at

Articles on Hydro-Electricity, Governance, Mobile Banking, Pharma etc.


Table of Contents
Campus Thoughts
30,000 MW of Hydro in Arunachal Pradesh - Is Harry Potter helping? A criticism of the State Mega Hydro Electric Policy, 2008 Coding the Takeover Mantra Analysis of principles which govern the take over code Gearing up The Indian Public Sector for Shared Services Cost effective way of governance Customer Analysis in Indian 'Mobile Banking' Sector Analysis of 'Mobile Banking' sector from customers' perspective Impact of Internet on Print Media Integrating services with multiple delivery platforms to generate productive business models Indian Pharmaceuticals Industry Evolution and the road ahead The Power to Disrupt Competitive leadership in systematic innovation is shifting 'from the west to emerging markets' Climate change negotiations and its links with Wind Energy Incentives like renewable energy certificate trading to promote growth Leveraging the Power of NPS in B2B Markets Action which can enhance power of marketing & sales operations Marketing for Tomorrow : Social Media Marketing Validation of 'Social Media Marketing' from a social psychology perspective Quo Vadis, Affiliate Marketing Determination of facts which will help it overcome its pastignominy







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Dear Readers, As we present the third issue of Audire the IIM ABC Consulting Review, on behalf of the editorial team, I wish to thank the industry and the academia for their overwhelming support to our magazine. Our previous issues were well received by the readers and we would like to thank them for their valuable feedback. We hope to bring to you an eclectic mix of insightful articles with this issue. The diversity of articles in this issue is a testimony to our rich pool of contributors. Our writers have raised issues ranging from hydro-electricity to governance through their thought provoking articles. Today, businesses are fast becoming global organizations spanning multiple geographies and disciplines. A manager today is confronted with new technologies and business models on a daily basis. Gone are the days when one could merely shrug our shoulders and say, “This isn't what I have been trained in.” In this dynamic world, it is necessary to have a broad outlook in order to appreciate and harness the potential of a business. We intend to stimulate this diversity of opinion and thought with this issue of Audire. On behalf of Team Audire, I would like to extend my heartfelt thanks to our industry partners, UAE Exchange and the students of IIM Ahmedabad, Bangalore and Calcutta who have full heartedly supported our endeavour. We hope to hear back from you, your suggestions and feedback on this issue of Audire. Please feel free to write to us at LLPDEFDXGLUH#JPDLOFRP Happy reading ! Team Audire

IIMB Varun Saini G Venkatesh Nobal Preet Singh P Hariharan IIMA Amber Maheshwari Gurveen Bedi Utsav Kheria Rao Chaithanya Prabhakar IIMC Sumit Singla Abhishek Chopra Pankaj Chatrath Alpesh Chadda



and there is definitely a need to add capacity. In this article we explore why. state governments such as that of Arunachal Pradesh have promised high capacity additions.000 MW of power within the next decade. 2008 Abstract India is a country in a massive power deficit. in the last decade has not added more than 100MW of power. some of these promises are far from reality taking the case of Arunachal Pradesh – a state that is aiming to add a whopping 30. India is in a huge power deficit. Arunachal Pradesh. If the plans of the power ministry do take off. The ministry outlines the need for India to add hydro capacity to its portfolio. Recognizing this.30. we might actually be close to achieving “Power for All”. 1 . which. based on the argument that environmental pollution needs to be controlled. that might not be possible. Looking at the plan of Department of Hydro Power. one cannot help but be stunned by the mind-boggling installed hydro capacity that is expected from the state by the end of the 12th 5-Year Plan. suddenly add as much capacity in 10 years that the entire country has not even added in the past 2 years? We need to dig deeper into the Hydro Policy for the state and analyze why after all.000MW of Hydro in Arunachal Pradesh Is Harry Potter helping? A Criticism of the State Mega Hydro Electric Policy. But. is this really possible? How can a state. In sync with this plan. the government has set out on an ambitious plan to provide “Power For All by 2012”.

3. Seismology – Arunachal Pradesh falls in the Seismic Zone V which means it is highly prone to earthquakes. The plan simply mentions the cooperation required between the government and the private players to achieve this task (Article 9. companies that have been allotted projects are finding it increasingly difficult to motivate employees to work due to employees' perception of the threat to their lives.IIM ABC CONSULTING REVIEW .The plan cites the total hydro potential of the state upwards of 57. Insurgency – One would expect special clauses to attract investment in a zone which has had a history of insurgency from Nagaland rebels and other similar separatist organizations in the North-Eastern part of India. In fact the entire north-eastern region of India cannot evacuate more than 1. 3.10). The proposed projects would also result in storage of huge amounts of water. In the event of an earthquake. forest department objections etc. China refuses to accept the document on the argument that China now has sovereign control over Tibet and it was not party to the agreement. that it is very difficult to convince locals.000MW. As a result. Every now and then. the government document ignores these issues. laying lines becomes a onerous task. 4. Clearances – The plan outlines that the government will provide all possible clearances required for the projects (Article 9.10). With the development of these projects. The plan outlines the need for private developers to take this into account and also educate the local population about the safety of dams (Article 1. the Power Minister talks about the great hydro potential of the state and of full support of the government in securing required licenses. 2. In fact. they are very real for private players' participation and should be addressed in the plan. There seem to be no incentives to take into account this risk. the speech by the then Union Minister for Power. the plan contains no provision to compensate this.500MW of power to other regions. but fails to talk about how this capacity addition will be achieved. leading to loss of flora and fauna. In the speech (referred above). However. In fact. the 'flag-ship' plant of Subansiri Lower which was conceived in the 1980s and on which the construction was revived in the early part of the decade is scheduled for completion in 2013 after suffering numerous delays. However. leading to poor evacuation of power. In spite of all the help promised in getting clearances. a number of projects in the state are stalled due to land clearance issues. water pollution and defacement 2 AUDIRE .9). a large area of the forests will be submerged. such as rehabilitation and resettlement (R'n'R) issues (Article 1. In fact. Let us analyze the major deficiencies in the plan – 1. Contrast this with the fact that North Eastern parts of India get Natural gas at a discount to encourage fuel use in those areas.11). there have been political and diplomatic flare-ups between the two nations on this issue. As expected. the plan talks of no government support. While the plan does highlight some issues with the development of hydro power in the state. the plan contains a clause “The developer shall be responsible for upkeep of the ecology of the project area and its surroundings by preventing deforestation. History of delays – The plan contains in its objectives the need to execute projects on time. Terrain – The state is not yet connected to the national grid and transmission capacity in the state remains dismal. Considering however. the havoc that a potential 200MW dam can unleash can be very much like a tsunami in that region. The China angle – Even though the McMahon line was recognized officially by the Tibetan government in the Simla Accord. also outlines the need for timely completion. Mr Sushil Kumar Shinde in 2006. Arunachal Pradesh however. 5. has an 82% forest cover. but. it glosses over most issues. Arunachal Pradesh happens to be a very mountainous region with a thick forest cover.

pdf.ernet.cms.indiatimes. CORETED/20HYDRO/20POWER/ 20POL C/202008. considering the number of plants that are being awarded in the state. free from custom duties.pdf.000MW will remain on paper for years to come. “India's forest cover rises to 21/”. NHPC Annual Review. (Last accessed: 6th Jan '10) 5. (Last accessed 2nd Jan '10) 3. the gradation of upfront premiums wherein a small hydro producer will be allowed to pay a lesser premium per MW seems a bit counterintuitive. The upfront premium (which developers pay to win the rights to build the plant) is markedly less than some of the projects that have been allotted recently in other states (Article 9.09. (Last accessed: 6th Jan '10) 3 . However. He holds a Bachelor's degree in Computer Science & Engineering from National Institute of Technology (NIT) Allahabad and can be reached at arpit. In fact.pdf.nic. About the Author Arpit Agrawal is a 2nd year PGP student at IIM Bangalore.aspx. “State Hydro Power Policy 2008”.nic. the only “incentive” so to speak has been to lower the bar for “megapower plant” status that allows the generating company to import capital equipment. Sushil Kumar Shinde. In conclusion. the state government is facing flak for what might possibly be a way of aggregating money from projects that might not even take off. the smaller the project. the producer has been allowed to avail the income tax holiday of 10 years (typical to most hydro projects) any time during the first 15 years of commencement of operations (Article 6.nhpcindia.2006.arunachalhydro.agrawal08@iimb. http://www. lesser are the risks involved. This clearly indicates that the state government will provide limited support. Power Ministry of India http://powermin.The document outlines very few sweeteners. the plan of india/Indias-forest-cover-rises-to-over21/articleshow/ pdf/Arunachal_Speech_21.of natural landscape” (Article 12. In fact. lesser are the possible delays etc. Government of Arunachal Pradesh Scripts/Performance_Annualreview. Going by this logic. Transcript of the Speech by Mr.powermin. However. http://www.1). (Last accessed: 6thJan'10) 4. the government should probably be charging a higher premium for small hydro producers and subsidizing the large hydro producers due to the quantum of risk they are (Last accessed: 4th Jan '10) 2. Unless the state government demonstrates its commitment by expediting MoUs and contracts with environment agencies rather than mentioning it in its policies. Times of India.13).in References /powergrid_map. Transmission Grid Map of India. Even the incentives that seem to be mentioned in the document do not seem to be serious enough to attract participation from companies. The Sweeteners . In addition.2). the hydro plan of Arunachal Pradesh appears to be just a “plan” that fails to address the basic problems faced by developers in the state.

IIM ABC CONSULTING REVIEW . As far as acquisition of listed domestic companies is concerned. This write up will analyse some of the important principles which govern the Takeover Code along with a few high-profile transactions which happened in the last few months. Indian companies are again keen on pursuing the strategy of inorganic growth and are willing to tap any synergistic opportunity that exists domestically or internationally. Indian companies are again keen on pursuing the strategy of inorganic growth and are willing to tap any synergistic opportunity that exists domestically or internationally.Coding the Takeover Mantra Abstract After a year of uncertainty and gloom India Inc. is on a roll again thanks mainly to the timely stimulus initiated by the government and the confidence in the Indian markets shown by the foreign investors in the recent months. i Just as in the years before the economic slowdown. is on a roll again thanks mainly to the timely stimulus initiated by the government and the confidence in the Indian markets shown by the foreign investors in the recent months. Takeover Code is a very important regulation which companies have to comply with. Strategic Issues from a Regulator y Perspective After a year of uncertainty and gloom India Inc. This clearly demonstrates the role played by Mergers and Acquisitions (M&A) in helping companies to attain size and scale required to catapult them to 4 AUDIRE . Just as in the years before the economic slowdown.

certain specified threshold limits activate various disclosure and open offer requirements. The Takeover Code has been amended many times since its inception in 1997. ii There can be various reasons underlying these transactions but the most cited reason is cost savings arising out of economies of scale. then he/she has to disclose at every stage his total shareholding to the company and to the stock exchanges where shares of the company are listed. 1997 popularly known as the Takeover Code. Apart from the disclosure requirements the Takeover Code also mandates an Open. Thus the obligations under the take over code are two fold. Achuthan which was appointed to suggest modifications to the existing takeover regulations submitted its report to SEBI on 19th July 2010.offer to be made when the acquirer gains control or crosses a certain percentage of shares/voting rights. iii Interestingly the Takeover Code applies only to companies which are listed in the stock exchanges. SEBI has tried to cover almost all possible scenarios wherein the acquirer will try to structure the deal in such a way so that it can exercise indirect control over the target company without triggering the obligations under the Takeover Code. a) Disclosures to be made when the acquirer crosses a certain percentage of shares/voting right b) Open offer to be made when the acquirer gains control or crosses a certain percentage of shares/voting rights. The disclosure obligations mainly are reflected in Regulations 7 and 8 of the Takeover Code. 54% or 74% shares or voting rights in a company. In 2009 itself the Takeover Code witnessed some major amendments primarily necessitated by the SATYAM scam. v Under the Takeover Code. The Takeover Code is going to witness some exciting changes in the days to come as the committee headed by Mr. In the last one year or so the domestic market has witnessed some high voltage transactions involving Indian companies in the field of acquisitions. For this purpose the Takeover Code also defines a Person Acting in Concert (PAC). Since many of the companies who got acquired happened to be listed in the stock exchanges. The Takeover Code endeavours to give equality of treatment to all shareholders. protection of shareholder's interest and fair & truthful disclosure of all material information by the acquirer in all public announcements and offer documents while an acquirer attempts to takeover a target company. Thus any direct or indirect acquisition of shares or voting rights that entitles an acquirer to exercise 15% or more 5 . 11 and 12 of the Takeover Code reflect the concept of Open-offer. For doing so. C. They simply state that if any acquirer is purchasing shares/voting rights more than 5 %. the Securities & Exchange Board of India (SEBI) also played a major role in ensuring that the interests of all categories of shareholders were protected to the extent possible. 14%.the next big league. who acts for a common purpose of substantial acquisition of shares/voting rights or gaining control of a company with the co-operation of the acquirer. There are numerous decisions which make it clear that even an agreement to acquire shares/ voting rights or control will trigger the obligations under the Takeover Code vi. 10%. SEBI is armed with a powerful regulation called Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations. The very fact that it was changed on numerous occasions shows the complexity and uniqueness of the issues which the regulator is confronting while dealing with each case. Regulations 10. iv In 2010 April also some minor changes were made to the Takeover Code. It is expected that SEBI will now consider the report in detail and take its final decision in the next few months.

Interestingly the match started in June 2009 when ABG made a counter offer of Rs. Another interesting twist to the tale came out in January 2010 when ABG informed the Bombay Stock Exchange that it acquired 15.2% in the market and virtually signaled an end to the close race which went on for the past x five months. The battle over the company. However in April 2010 Great Offshore passed a special resolution which 6 AUDIRE .IIM ABC CONSULTING REVIEW .2% in Great Offshore by virtue of the open offer it made at a price of Rs. For example in the recent open offer under the Takeover Code made by Arcelor Mittal in Uttam Galva Steels although Arcelor Mittal had initially acquired less than 15% stake. The Takeover Code also deals with circumstances when an acquirer gains control of the company even if there is no transfer of shares/ voting rights to the extent mentioned in the regulations. 590 per share in December 2009. Some of the changes were necessitated by the SATYAM scam. the open offer was triggered because of the fact that an agreement was signed by Arcelor Mittal to become a co-promoter of Uttam Galva Steels. 344. 520. viii Later on it also relaxed the conditions for open offer and procedures including the offer price for certain companies whose board of directors were removed by the central/state government or any other regulatory authority and had appointed other persons to hold office as directors for orderly conduct of the affairs of the company. 590 offer price made by Bharti. Great Offshore fought between Bharti Shipyard and ABG Shipyard had all the features of an India. vii As pointed out earlier. in the year 2009 the SEBI was forced to make certain important amendments to the Takeover Code. 373 for Great Offshore's shares which was higher than Bharti's offer price of Rs. Again in September 2009 SEBI took steps to amend the Takeover Code and inserted clauses which mandated that the holders of American/Global Depository Receipts should make an open offer if such receipts enabled the holders to exercise voting rights in excess of the stipulated per centage. ABG in the first week of December 2009 sold almost its entire Great Offshore stake of 8. The consequence is that thereafter the acquirer will have to make an offer by way of public announcement to buy atleast 20% shares of the said company from the general public. Both Bharti and ABG were fighting for a much bigger company than theirs and finally Bharti won the game with an open offer price of Rs. This really helped the acquisition of Satyam Computers. However realizing the fact that it will be unrealistic to outbid the Rs. The year 2009 also witnessed one takeover battle between two business groups which kept analysts on tender hooks. ix The amendment was made effective in November 2009. Finally Bharati Shipyard was able to acquire more than 20% stake in Great Offshore through its open offer made at a price of Rs 590 and with this Bharti had effectively clinched the deal. by the Mahindra Group because the amendments relaxed some very stringent conditions with respect to the offer price to be paid to the shareholders and facilitated the acquisition and revival of company which was almost on verge of a significant collapse. In January 2009 SEBI made it mandatory to disclose details of shares pledged by promoters.Pakistan thriller on the cricket field. Some news reports suggested that Bharati Shipyard might have contemplated another open offer to acquire management control of the company. 520. This led to revision of offer price by Bharti which was again countered by ABG which offered a price of Rs.of the voting rights in a company will trigger the open offer clause. since its acquisition of 20% stake was done under Regulations 10 and 11 of the Takeover Code which dealt with situations where there was no intention to take control of the target company xi.

This is surely going to rise in 2010 with the availability of more funds at the disposal of corporates which will open new vistas for pursuing inorganic growth.assocham. 2(1)(b) makes this point clear.htm 7 .html 5.hindustantimes.jsp?content Disp=SubSection&sec_id=5&sub_sec_id= 5 4. K. SEBI as a regulator has to play a balanced role which will protect the interest of all stake-holders in the market.would allow Bharati Shipyard to acquire control in it and that effectively eliminated the need for Bharati to make a second open offer.aspx http://www. Bharati etc clearly point to the buoyancy in the M&A space after the gloomy days of 2008. See the report titled M&A Activity in India More Than Doubled to $3 bn in Jan 2010 available at http://www.moneycontrol. He can be reached at 708/Great-Offshore-gets-Bharati-on. To SEBI's credit it has been doing this role in a commendable /ABG-exits-Great-Offshore-takeoverwar/Article1-482328.financialexpress.sebi. 8A was added in January 2009 This was added by SEBI (Substantial Acquisition of Shares and Takeovers) (Third Amendment) 322/ 25 (2B) and Reg. 29 A were added in February 2009 This deals with exemptions given to merchant bankers/nominated advisors who are in the process of market making according to terms and conditions prescribed in the case of public issue made by Small and Medium Enterprises (SMEs) Definition of the acquirer given in Reg. Full details at http://www. Full text of the Takeover Code is available at http://www. See Assocham Report on M&A at http://www.pdf /news/business/uttam-galva-eyes-newsegments-post-arcelormittaldeal_414328.livemint.html References reat-Offshore-shares-up-6--after-openoffer-from-Bharati/558371/ http://www.livemint. The balanced approach of SEBI will be crucial in preserving investor confidence and any initiative by the regulator on this front will help a long way in bringing stability to the capital markets which is in a state of slow and steady revival. Details at http://www. About the Author Professor V. The above transactions involving companies like Arcelor Mittal. Trend_of_MA_in_India_April June_2009_. Reg. Unni is currently an Assistant Professor in the Public Policy and Management department at IIM Calcutta.


Third Party: in which one organisation (private or public sector) either partly or completely assumes responsibility for running services for others. Bearing this in mind. time and other resources. Municipal Councils). This article considers the case for Shared Services in the Indian Public sector. Global slowdown and consequent reduction in available funding has left the governments with no choice but to find smarter ways to invest in systems. It is therefore recommended that India follow bottom-up approach. Internal Centralization & Informal collaboration. Introduction There is no one single overwhelming factor but rather a combination of factors that command government's attention for an immediate imperative to improve not just the quality of service provision. 1. Shared services are fundamentally about optimising people and their skills. 9 . resources and infrastructure to meet their goals. Joint Ventures. whilst simultaneously improving efficiency and reducing costs. There is urgent need to reduce duplication of front end as well as back-office processes to make governmental functioning more efficient by engineering. Outsourcing. For example. Based on the analysis of two models (as per Table 1) Joint Working as a form of shared service is recommended for the Indian public system. Insourcing. but also efficiency. Joint Working : in which participants try to consolidate functions within existing institutions. Approach : Bottom up or Top Down ? Shared services model can be broadly divided into two categories characterized by the relationship between partnering organizations: 1. alongside the core challenges and perceived barriers to its adoption.Gearing up The Indian Public Sector for Shared Services: Cost Effective Way of Governance Abstract The need for cost effectiveness cannot come at a more pronounced time than the present year. and building centres of expertise and professional best practices. the model is recommended to be adopted first at local level across states before going national. which essentially means implementation in the urban local bodies (ULB) (comprising of Municipal Corporation. cooperation and collaboration between local authorities in order to achieve economies of scale in delivering services. The success of this model would depend on the state of basic infrastructure. For example. The paper also proposes future growth trajectory of Shared Services towards a more centralized state in India. Co-sourcing. the known opportunities and benefits. It is more likely to get the initial buy-in of the government employees since it does not threaten their employment and also keeps the basic operations with the government. Perhaps the newest challenge is to improve the quality of services provided to public. Shared services in the public sector is a model whereby governmental bodies come together to deliver part of their business in a combined or collaborative operation by maximising the use of scarce resources and skills. India should adopt Internal Centralization as a joint working model which not only ensures internal centralization of all administrative and financial tasks locally before moving at higher levels but also helps in building capabilities essential for it. assets.

water and sewerage bills. ? Minimizing the average number of Expansion Business Process Reengineering Front-End Automation Figure 1: Stages of proposed Shared Services at ULB ? Reducing the average customer waiting time ? Reducing the fees and charges associated with the service ? Reducing the time spent to follow-up and track the progress of the requested service ? Increasing the accessibility in terms of the customer visits per month ? Reducing the lead time to avail the service number of centers and the average number of working hours per centre ? Increasing the number of services availed vis-à-vis the number of visits.OPTIONS BENEFITS DRAWBACKS Table 1: Comparison between the sourcing strategies Implementation of Shared Services at ULB Stage 1: Front-end Automation: Front-end Automation aims at integrating and offering a wide range of government to citizen (G2C) services at a single location called citizen service centres (CSC). 10 AUDIRE .e: payment of public utility bills and taxes including electricity bills. On basis of a number of factors which are of immediate concern for common citizen.IIM ABC CONSULTING REVIEW . etc. and property taxes. a number of services have been identified to be offered in the first phase of front-end automation. The CSCs would be a one-stop shop for a gamut of customer services i. The main aim is to change the typical department-centric approach to a more customer-centric approach.

telephone. trust and expertise and move gradually on to more challenging areas.The second phase of Front-end Automation in addition to the above mentioned factors would be to reduce the number of touch points in the SERVICES specialist staff with knowledge management tools. Transactional service: that do not involve customer interaction with any local authority such as bill processing of electricity. i. processing house tax.emergency number. those transactional processes that can be made rulebased. 11 . Capital Management: services that can be provided by pooling the overheads of services with additional capacity. Legal services: the ones that essentially don't change from area to area such as legal services.e: Issuance of certificates and permits. They fall into three main areas 1. out of hour's services or a shared non. Sharing services on this model would create savings from economies of scale. including professional services. for example. CATEGORIES Table 2: Services to be offered during the first phase of front-end Automation defined by the criteria identified above system and hence the services that qualify for the second phase would be ones with more than one touch points in the system. water tax. 3. and follow a pattern. A number of areas were identified as relatively 'low risk'. 2. Stage 2: Business Process Reengineering (BPR): BPR guarantees elimination of all the redundant processes in the day-to-day functioning of government. BPR aims to reduce service costs through a process of 'stripping out' from all services. develop experience. property tax. and the ability of contact centre staff to carry out many different transactions. It entails system improvement and efficiency trying to remove as many stages from the process as possible. Integration of front office functions with back office computer systems to create a single interface for customers is a step in the right direction. and sharing those within ULB where they can be processed by It is proposed to start shared services with low risk areas.

2. Benefits and Taxation Legal Services Issuance of certificates and permits Capacity Management Out of hours emergency services Single emergency Number Table 3: Classification of services for under Business Process Reengineering Stage 3: Expansion: Expansion of the new efficient system to subsequent levels of government would help move towards a more centralized state in India. 5. 3. Expansion of shared service model horizontally amongst different ULBs would be the last phase in the implementation of shared service in India. Expansionary phase envision setting-up of similar shared services across India with the aim of establishing a centralized system in the country.CATEGORIES ACTIVITY Billing and Accounting ADVANTAGES Economies of scale with cost effective service Transactional Services Revenue. The landmarks to be achieved in this phase are enlisted below: 1.IIM ABC CONSULTING REVIEW . 4. ULBs Districts Divisions State Government Central Government 12 AUDIRE .

The article proposes internal centralization as the initial phase for establishment of shared services for India. The project entails automation of customer facing front-end and internal workflow and processes of the ULBs with the possibility of seamless integration of various departments like Property Tax. Accounts etc. Schemes like VRS can be put 13 . Benefits accrued to KDMC ? Increase in property tax /water bill revenue ? Additional revenue earned through authorities purchasing the same or similar service from a single provider ? delivery partnership between a ULB and A a private partner. Business Case: Kalyan Dombivali Municipal Corporation (KDMC) KDMC project undertaken by the Government of Maharashtra is a case in point which has replication ? Enhanced productivity and thus better utilization of existing manpower ? Elimination of monotonous and repetitive work ? Accurate forecasting and effective planning due to MIS Risks and Challenges There are numerous risks and challenges in implementation of the proposed system in India.Governance application software coupled with necessary administrative reforms. the impetus for moving towards shared services must come from the local authorities themselves. Market License. offering services to other local authorities/public services. Such a system is already in place in developed countries and India is also gearing towards the same nevertheless until such a change occurs. more ULBs ? Shared commissioning between a ULB and other local public agencies within the ULB e. A more comprehensive typology for expansion would be: ? Shared commissioning between two or implemented custom-made e. police. it is suggested that internal centralization be followed as the first phase of shared services for helping the governmental bodies build such capabilities. however. ? Shared delivery between two or more ULBs ? Simple outsourcing.g. with several local Presently the project is in expansion state wherein horizontal transfer of e-governance solution at KDMC (MAINet) across all ULB in Maharashtra has been envisag ed by Government of Maharashtra (GoM). Decrease in headcount The implementation of shared services in ULBs would result in removing routine transactions from back office and front line staff freeing them up. The freed staff cannot be fired and alternate options would have to be scouted for them.Expansion across ULBs Expansion across different ULBs within a state would essentially consist of horizontally transferring the shared service model to them so as to increase the scope for pooled budgets and integrated working across ULBs. Food License. These include greater integration between different ULBs. which might be a cause of concern among employees. health. Water Tax. for providing services to the citizens. However. its only time before such services would be outsourced to a third party. Birth and Death Registration. Town Planning.

London: Attenda ltd. PricewaterhouseCoopers.U. UK. (2007). The freed staff can also be used in the CSC for delivery of services. Conclusions It is possible to create service improvement and greater efficiency savings through adoption of shared services in the Indian public system. (May 2008). However. Associate Professor John Spoehr. Each area resulting in cost saving has to be carefully considered to derive maximum benefits like Staff rationalisation. and handle data in a uniform way. Selective Outsourcing for the Public sector.P. 3. Pricewaterhousecoopers. identification of revenue leakage. Pricewaterhousecoopers. About the Author Neha Bisht was a PGP-ABM student at IIM Ahmedabad and graduated in 2010. property tax etc. but considering successful examples it seems that they are by no means insurmountable. 9. (June 2006).B. London.Tech degree in Agricultural Engineering from G. Pantnagar and can be reached at 8neha@iimahd. Shared services: The opportunitues and issues for public sector organisation. 8. 6. Accenture. 5.ernet. can be made far less vulnerable to failure with data back-up and disaster recovery policies having similarly developed in a reactive and ad hoc way. The shared experience. Richard Whiter. Accenture. A. References 1. Shared services Centres and Off-shoring: trends and jey risks and considerations. She holds a B. KPMG. Affordability Making shared services affordable can be a challenge for the public sector. Mumbai. 7. (2006). surveying of unauthorized dealings in water. A&T. for such a system to succeed active participation by local bodies is indispensible. Mumbai. White paper on e-Governance @ KDMC. 2. basis and rationalisation of the support arrangements. Detailed project on Horizontal Transfer of KDMC eGovernance solution . Alternate functions in ULBs can be pursued such as revenue improvement. 4. IPF. Though there exists a lot of hurdles in its implementation. (2007). Shared services for even greater efficiency in local government. new systems explicitly designed to perform specific tasks. 14 AUDIRE . Attenda Ltd. Management overhead. It is critical to ensure that the right governance models are applied to assure elected members that the right accountabilities are in place and provide confidence their responsibility to make sure that those services are carried out effectively are protected. Kevin O' Donovon . The Government Executive Series. Governance and accountability Elected members' concerns regarding the erosion of their responsibilities must be addressed.IIM ABC CONSULTING REVIEW .in place for such staff. London centre of excellenceShared services . ICT ICT brings a number of challenges. ICT procured. Adelaide: Public Service Association of SA.

He lives in rural areas and has no access to any banking facility and would like to save his money in an account. and to serve each segment in the best possible way. and the service it provides is cheap. the requirements to ensure maximum penetration into the rural area. 2 per transaction makes it a very cheap and attractive option to these customers. In contrast. A rural migrant laborer. The reach of the mobile phone is wide. The paper also suggests a method for segmenting customers on the basis of population density and available financial facilities. since it will provide them much needed M 15 . it is best if we can find out what percent of the mobile users in each segment do not have access to banking facilities. While customers in such areas do not have banking facilities in their neighborhood. Broadly. It is said to be the cheapest alternative source of banking. For instance.Customer Analysis in Indian Mobile Banking Sector Abstract This paper analyzes the Indian mobile banking sector from the perspective of a customer's needs. It then understands from their behavioral tendencies what their needs are. Finally. we can say that people in the regions VII to IX will benefit the most from mbanking. The fact that mobiles can be brought from Rs. 2 to 5. we can divide mobile phone users based on the population density of the locality into urban and rural. and at an automated teller machine (ATM). The reasons for this are quick disbursal and lack of collateral requirements while borrowing from other sources. On the other hand. but transacts with his customers using cash and will be willing to switch to mobile banking for the convenience that it offers. About 40% of the individuals that have bank accounts borrow from banks while just 6% of people who do not have accounts borrow from banks. cheaper than an internet banking transaction that costs Rs1015. a mobile phone transaction would cost about Rs. Segmentation Based on this information. a grocer in a city will fall into region IV. we can divide the users on the basis of demographics or customer needs. who keeps travelling. between Rs15 and Rs30. 40. and proposes a method to ensure maximum adoption. Within each of these population categories. If a person does not have a bank account. The urban users can be further divided into tiers based on the population size of the cities. 1000 onwards and that mbanking services cost only Rs. the capacity to borrow is significantly less. obile phones have touched the life of more than 500 million Indians [3]. we can segment the various types of customers on the basis of population density and financial backwardness as in Table 1. 35 and Rs. However for our analysis. 18% of people having accounts borrow from other sources as compared to 40% of non account holding individuals [1]."[4] A significant portion (49 per cent) of high interest rate borrowing in rural India is for consumption smoothing. preferably in a portable option like m-banking. M-banking is an attractive option for banks also. depending on the location. are suggested. "A banking transaction in a branch costs anything between Rs. they do have mobile connections. According to an article in Live Mint by Gargi Banerjee. since he will not have a credit card or internet banking. would be in region IX. Based on this.

IV and VII is easy since mobile infrastructure is in place and the only requirement now is to buy a mobile phone and activate m-banking. People in II. Self efficacy Normative Pressure Figure2 : Factors needed for adoption of M-Banking 16 . the perception is that m-banking is difficult to use. Those in I to III may not want to use m-banking since they have other cheaper alternatives.Financial Facilities All facilities available Limited financial facilities Financially Excluded Cities I Tier II towns II Rural Areas III IV VII V VII VI IX understanding of transactions. By analyzing the customers thought process. To reach segments I. People in IV to VI would also want to use m-banking to reduce transaction costs and for the added convenience. Lack of infrastructure for distribution of mobile handsets is another barrier. T h e m o s t i m p o r t a n t understanding is that the services should be very simple to use and easy to learn. This knowledge has to be factored in while designing the user interface. VI and IX may find it difficult to use these facilities unless mobile networks grow to cover most rural areas. But the growth of m-banking in African nations which are in a comparable situation to rural India shows that mbanking is easy to adapt and use by the entire spectrum of population. When a few individuals use the service. Figure 1: Suggested framework for segmentation of various mobile banking users access to banking services. Perceived Usefulness [2]: M-Banking has a very high perceived usefulness when it comes to the financially excluded population. everyone is under pressure to adapt to it. Also sending an SMS is not considered secure by a major section of the people. Perceived Credibility [2]: The m-banking solutions have high levels of encryption and privacy.[2]: 1. Baba and Mohammed. Otherwise most people would not use it. But those who have access to internet banking and credit cards see mbanking as an expensive alternate to current methods. Perceived Ease of use [2]: Given the low literacy levels in India and the lack of 4. based on a paper on customer adaptability to mobile banking by Amin. 3. the rural sections of the society have a fear that they will not be able to learn how to use the product. but the people in III. Usefulness Credibility Ease of use 2. But the perception of people that mobiles can be easily stolen and someone could misuse their accounts creates a fear in the minds of the people. we can find out the needs of the customers on a p r i o r i t y b a s i s. Perceived Self-Efficacy [2]: Due to the lack of education. Normative pressure [2]: One of the main reasons for the success of m-banking has been the normative pressure. Factors needed for adoption of m-banking This section examines the factors needed for customers to adapt to any new technology. However they might switch to m-banking once it is accepted all over and it offers low cost portable services. V and VII also would find it easy to shift.

html (Last accessed on Jan 17. 2010) 5. Andhra Pradesh. Money Matters. Live Mint. this will ensure the empowerment of the lowest strata of society as has been observed in several African countries.ernet.the options provided in m-banking services and the customer helpline. Targeting the right customer segments and working closely with service providers and mobile phone manufacturers shall dictate the future of m-banking services in India. 2010) 4. http://www. http://www. 1. By encouraging a few citizens in the society to use m-banking. Sundaresha Subramanian and Anirudh Laskar. N. telcos set to push m-banking. ubiquity. 223 2. Options currently considered include use of low cost biometric scanners. Ricardo Baba. 4. “Banks.thehindu. Shubhashis Gangopadhayay. acceptance can be guaranteed. Sunway Academic Journal. Ideally. UID project will help banking needs of poor. Jan 12 541/Banking-on-mobile-phones-forc. Corporate News. 2008. a rural laborer should be able to buy his daily provisions using a simple m-banking transfer to the shop keeper. She holds a Bachelor of in Electrical and Electronics from second year PGP of /22/stories/2009102254070400.livemint.livemint. 2009. Gargi Banerjee. Another huge factor that will increase the use of mobile banking in India is the easing of regulations to enable use of mobile to make real time payment. Conclusion Based on the understanding of the customer. htm (Last accessed on: Jan 17. Vol. About the Authors Ayshwarya R. we can suggest that some of the values that should be included in the final offering are ease of use. “An Analysis of Mobile Banking Acceptance by Malaysian Customers”. 2010. security. This can be established by providing information about security issues and ability to quickly block service in case a mobile is lost. Ahmedabad. The next factor needed for wide spread adoption is the normative pressure. He holds a Bachelor of Engineering degree in Electrical and Electronics from Birla Institute of Technology and Science (BITS) Pilani and can be reached at 9muralik@iimahd.http://www. where it can serve a latent need for banking services. Hanudin Amin. Mar 31 2008.html (Last accessed on: Jan 17. and global acceptance. Websites: Murali Krishnan Nair is a second year PGP student at the Indian Institute of Management. Oct 22 2009. "Banking on mobile phones for cost as well as 24x7 convenience". 2007.ernet. 'How Can Technology Facilitate Financial Inclusion in India?' Review of Market Integration 2009. While this will require a high degree of adoption. Tying up m-banking with the unique ID scheme is also on the cards [5]. Jan 2007. Multiple PIN's (Personal Identification Number) may also be used but it might decrease the ease of usage. The next issue is a need for high perceived security and privacy. Another important factor which shall drive the growth of m-banking is the penetration into the rural parts. share revenue”. Mohd Zulkifli Muhammad. 2010) 17 .in References Articles in Journals: 1. Engineering degree Birla Institute of Technology and Science (BITS) Pilani and can be reached at 9ayshwaryar@iimahd. Vikram is a student at the Indian Institute 11235610/Banks-telcos-set-to-pushmba.

Thus. currently standing at Rs. Print Media Industry We can define print media (Business Dictionary.8 billion. However.52) cites the examples of Business Standard shutting down its Gujarati edition and Jagran putting off expansion plans.. Industry Trends Faster growth in non-metros: The rise in disposable income has led to increased circulation in smaller cities. Most publications have done away with free supplements and also reduced the number of pages. The Indian print industry has learnt from the detrimental impact that the Internet had on the foreign print industries. The market is also highly fragmented in nature. This has seen the rise of many specialty magazines and regional language newsletters in Rural India which have helped maintain the industry's market share. The revenue generated from advertising depends heavily on circulation volume. having grown at 13. there are a number of dailies with a circulation over one lakh. Definition.51). p. industry growth was affected by the global economic slowdown. as can be seen in Exhibit 4. and is based on the number of copies sold and subscription rate charged. The reduction in ad revenues has led to offices and editions of certain newspapers being shut down.3% in the last four years (PwC. para. which was started in the year 1780. Fast forward 230 years. One important thing to note here is that there is a steadily widening gap between the revenues from circulation and advertising. over a long term the print industry should look at integrating its services with multiple delivery platforms to generate productive and sustainable business models in the future. p. n. As circulation drops. which is the second most important source of revenue. The upward rising growth in sales suddenly took a downward turn in 2007-08. The concern that this report aims to address is the anticipated outcome of the massive footprint which the internet has made on print media.Impact of Internet on Print Media Abstract Since 1780. the Internet has redefined the boundaries of every professional sector in the world and reshaped the way each of these industries work. advertising revenue also falls. Indian print media finds its roots in the Bengal Gazette. 2009. PwC (2009. Exhibits 2 and 3 show how the industry growth is distributed between these drivers. Introduction In its own imitable way.IIM ABC CONSULTING REVIEW . Rising newsprint costs have added to the existing pressures. 18 AUDIRE . 1) as the “industry associated with the printing and distribution of news through newspapers and magazines”. Impact of global economic downturn: As can be seen in Exhibits 2 and 3. Refer Exhibit 5 for detailed statistics. any decrease in circulation volume can have a magnified impact on a newspaper company's total revenues (refer Exhibit 1). especially since most of the companies began to cut down on their advertising expenses.d. and print media has become one of the largest industries in India.161. while growth rate in metros has slowly become stagnant. the Indian print industry has worked at the dissemination of information.

have reported a slump in readership as compared to the findings of IRS 2008. but in a country where the economy. Even then.internetworldstats. Furthermore. For instance. Akamai (2009) reported that India “has an average internet connection speed of just 895 Kbps compared with the global average of 1. and the consumer can also become a provider of information. once a newspaper establishes its brand. However. the Indian Readership Survey (IRS 2009) inferred that almost all of the English dailies are losing readership at a rate much faster than the rate of their growth. income levels and middle class are growing fast.1% (http://www. widespread broadband adoption seems inevitable. Several newspapers have shut down operations or are already looking for a buyer (refer Exhibit 6). though increasing. including the biggies such as Times of India and HT. The main reason for this ambivalence could possibly be explained by the fact that the language of the Internet in India is primarily English and hence the impact of internet on local language newspapers has been minimal. Many of them. the Indian newspaper industry has been doing relatively well. primarily because they ignored the threat from growing Internet penetration. at your fingertips. Print media and Internet: A source of strategic advantage There is an immediate urge to think that internet is a threat to the print media industry as it eats into readership. there were 81 million internet users with a penetration rate of 7. The other perspective can be to look at the synergy that internet brings to the print 19 .com) and 5.Internet as the Trigger Despite significant start-up and fixed costs involved in the newspaper industry.28 million broadband connections as of June 2009. On the other hand. Marginal. Although there is a debate raging in the Western world regarding the value proposition of the outdated newspaper model. or blogging for news channels like CNN-IBN. thereby making print media attract fewer advertisements and hence reduce profitability of the print media players and industry. online news sites also have the advantage of being able to show videos. it can recover these costs aided by large circulation volumes.5 Mbps” (as cited by CIOL. the disparity in growth of revenues through advertising and circulation is a worrying trend for the industry beginning from the years 2003-04. adoption of the Internet has led to the creation of a new market for mobile devices (like Kindle) which can be used for instant access to breaking news and information. The Ambivalent Picture As cited by The Viewspaper (2009). mainly attributed to free news available on the Internet. Also. internet penetration is one of the important reasons why the Indian newspaper industry has not yet come across stiff competition from this medium. These numbers are relatively small when compared to the western world. As of November 2008. when the Internet gained prominence in India (refer Exhibit 7). giving the consumer a favoured television-like experience. over the last decade several large newspaper companies across US and Europe have melted down. Ease of archiving and searching makes Internet a more attractive medium for retrieving information. writing comments and reviews on online news sites. 2009). a large number of regional newspapers have been expanding their circulation and geographical presence (Exhibits 8 and 9 reveal that regional publications are the leading newspapers and magazines of India). Internet has also transformed a one-to-many industry into a many-to-many industry as most of online media is interactive.

Internet sulks (2008. and Internet-related services. One lesson the Indian print industry has not yet learnt is that of pricing. generate more talk. instead of competing with internet. thereby attracting greater readership in a long run. The year 2007 saw an advertising revenue of around Rs. Hence. Entrepreneur. Some of the popular foreign magazines that have been successfully launched recently are Forbes. The idea is to link your services with online medium by establishing strong websites. subscription fees. Inc. The website also prevents the customers. Stuff (India's version of Stuff. para. 2).The print media is the most open to attack by the Internet medium but it still continues to garner a large share of advertising spends. print media industry might want to look at online services as an opportunity to expand and reach more people. ? website can be used as a promotional The tool to create a better image. 5). Internet sulks (2008. Print Industry Response While the Internet triggered a drop in circulation and advertising revenues in the print media. and lead to more hits. And it is this synergy that the pro-active players in the industry are looking to harness to gain a competitive advantage.first Magazine on Legal and Corporate affairs. 7). archival access charge. Harper's Bazaar. In fact 60 new magazines have been launched in the last 12 months in spite of the recent recession causing the revenues to drop by almost 30% in 1 year. revenues through adver tisements.. The Indian print industry. Indian media laws restrict foreign equity to only 26% in the news segment.S.300 crores. Fashion.A. 20 . There has been a shift of the print media towards tabloids and regional newspapers. para. from shifting to other online players. thereby covering at least the Web publishing costs. The Indian media laws have aided this trend by making the specialty magazine segment attractive to foreign publishers. 18% growth compared to 2006 according to Indian Media Industry – Print and TV Grows. This model is further helped by natural factors such as the existence of multiple regional languages leading to a consumer's ease of obtaining local information in the language he is most comfortable in. para. Currently. the Indian print media has still managed to hold its own. etc. The synergy provides following advantages: ? These online versions of the newspaper and magazines can reach more readers. Another lesson that the Indian print media seems to have gained from looking at their counterparts in the foreign industry is the importance of the 'niche' magazines. Seed Today. Recent times have seen the launch of quite a few such magazines. Travel and Health. Lex WITNESS. but allow full 100% foreign equity in other specialty magazines of other segments. 9. this synergy can reap huge strategic advantage for the early movers. like its foreign counterparts. If the operations can be aligned properly. Media Monday: 60 new Magazines launched in India in past 12 months (2009. Indian Media Industry – Print and TV has been consistently increasing the price of advertising. specific to segments such as News. Food and Nightlife.Open. UK). Feature and current affairs weekly magazine. Sports Illustrated India. ? These websites can be used to generate This is largely due to lessons that the Indian print medium seems to have learnt by looking at the issues raised by the entry of the Internet medium in various overseas markets like UK and U. who want to shift to online medium for news. ? offering (newspapers and magazines) The gets protected from competitors who have not yet forayed into online services.

optimize distribution and cost reduction by shifting to newer technologies. The Way Ahead India is said to live in its villages with nearly 75% of the population being concentrated in rural areas. Also.While.ernet. Industry players who can come up with effective and innovative cost reduction measures will have a significant business advantage. With advancement of technology. It should look into diversifying into multiple platforms to ensure that they have access to customers at both ends of the spectrum. the focus of the industry will shift to provide better content. Finally. i. Literacy rates are growing at a rapid rate in the rural areas. With more demanding 21 . technology savvy to the technologically challenged. the paid titles have seen a long-term decline in circulation volume. Industry Evolution: The Next Decade The print media industry is facing a structural challenge. These trends are forecast to continue as the reach of internet expands. About the Authors Aviral Jain is a PGP2 student at IIM Ahmedabad and can be reached at 9aviralj@iimahd. In metros. The industry needs to successfully address these challenges and make use of the tremendous opportunities that India as a country (due to its size and growth) presents.. The revenues for India's newspaper market are generated from advertising and circulation and this business model would continue at least for the next decade. Youth to Mature. Therefore. it has to be kept in mind that online advertising reaches a lot more people for longer periods of time at a lesser price. Internet adoption in the rural and semi-urban areas would be gradual. As a long term strategy this will ensure that the print industry has integrated itself across different delivery platforms thus blurring the line between the print and online medium. in short term. The Indian print industry should look to leverage this natural advantage that it has by looking into outsourcing opportunities be it in business processing or in content writing. Comparing past trends in the industry with projected trends (Exhibits 10 and 11). In the long run. much of the industry's activities can be mechanized. it can be seen that a slower growth of the Indian print industry is anticipated for the coming years. Another possible revenue model would be to increase the cover prices of the magazines and thereby increase the share of revenue from subscriptions. This would also ensure that the print industry's dependence on advertising revenues for survival will reduce. India is known for its “English” resource. Urban India to Rural India.e. costs can be reduced substantially. Thus Rural India provides a huge potential for the print industry. Therefore. constant hikes in advertising prices will only cause the print industry's major revenue sources to move away towards the online medium. though. as the profitability reduces due to competition arising by substitutes (digitization). Magazine brands that can provide access to customers across both mediums will attract more advertisers. may lead to entry of regional players to cater to the un-served rural population. There are also better monitoring and tracking capabilities. the print industry should look to embrace technology rather than compete against it. the industry may see consolidation and diversification by big players as a strategic response to the challenges. this appears to be a faster way to improve advertising revenues. The future. This will ensure cost reduction for foreign publishers while serving as a revenue source for Indian publishers and also increase their resource utilization.

Retrieved on January 15. 7. com/definition/print-media. Media Monday: 60 new Magazines launched in India in past 12 months. 68 92 100 123 1976 1986 1996 2006 d Notes : a Newspapers are printed (including cyclostyled) period works containing public news or comments on public news. 2008). Their periodicity can be daily.) Retrieved January 15. Retrieved on January 15. fortnightly. 2007).Ajay Sampath is a second year PGP student at IIM Ahmedabad and can be reached at 9ajays@iimahd. from /site/Story/69490/LATEST/20NEWS/ Magazines+bucked+recession:+Purie. PricewaterhouseCoopers. 2010. 2010. (n. d. from http://www. CIOL News. as at 32 Match. weekly. 2009). b. of copies 34 075 000 64 051 000 89 434 000 180 728 611 Languagesc No.d. (October 16. Indian Entertainment and Media Outlook. Retrieved January 15.pluggd. The circulation numbers may be understimates because not all newspapers submit their reports by due dates. The Viewspaper. monthly and other. from http://indiatoday. main languages recognised in the Constitution of Republic India and other languages and dialects of India. c.ciol. 2009). Retrieved January 15. Is Indian Newspaper Industry flourishing or floundering? Exhibits Exhibit 1: Newspaper circulation in India in the last three decades Newspapera No.intoday. tri and bi-weekly.html 2. (2009).ernet. (March 03.asp 3. (November 5. Indian Media Industry – Print and TV Grows. Magazines bucked recession: Pride.ernet. Readers prefer online newspapers – Study. The year ending 31 March. CIOL News. 2009). India Shantanu Shekhar is a second year PGP student at IIM Ahmedabad and can be reached at 9shantanus@iimahd.ernet. (November 9 2009).in/indiabusiness/indian-advertising-mediaindustry-print-and-tv-grows-internet-sulks1742/ 5. 8.html 6. of titles 13 320 23 616 42 388 62 483 Circulationb /Technology/NewsReports/India-ranked-107-for-avgconnections-speed/161009126443 /0/ 4. from http://www. Includes English.businessdictionary. 2009. from Srikanteaswaran T K is a second year PGP student at IIM Ahmedabad and can be reached at /news/2007/107030304. Source : Registrar of Newspapers for India (2007) 22 . India ranked #107 for average connections speed. Business Dictionary. 2010. 2010. Circulation is average number of copies sold and distributed free per publishing day.ciol. (June 17. Internet sulks. 2010. Other years are calendar years. (December References 1.

7 19.6% 161.5# 108. p.5 14.8 7.0 14.7 11.4% 7.6 9.3% 19.3 3. (2009. billion Newspaper Publishing % Change Magazine Publishing % Change Total % Change 2004 86.0% 2006 78.5 17.1 10.4 3.5% 16. billion Print Industry Advertising % Change Print Industry Circulation % Change Total % Change 2004 54.5% 150.0% 2008 103.0% 2008 140.1% 2007 131.1 18.0% 21.7% 13.Exhibit 2 : Growth of Indian Print Media Industry (newspapers and magazines) 2004-2008 In Rs.5 17.6 23.5 17.3% Exhibit 3: Growth of Indian Print Media Industry (advertising and circulation) 2004-2008 In Rs.4% 13. Retrieved January 15.9% 150. 2010.0 24.1 10. from 161.4% 108.3 2005 94.0 20.5 10.0 10.7 7.0% 2006 112.4% 13.7% 128.pdf Exhibit 4: A list of dailies with over one lakh circulation in India List of Dailies Claiming more than One Lakh Circulation in India (2005-2006) Title Languages City Circulation Ananda Bazar Patrika Bengali Kolkata 1234122 The Hindu* (P F12 DPP) English Chennai 1168042 Hindustan Times English Delhi 113664 The Times of India English Delhi 1102521 The Times of India English Mumbai 626568 Gujarat Samachar Gujarati Ahmedabad 561402 Divya Bhaskar Gujarati Ahmedabad 553164 Punjab Kesri Daily Hindi Jalandhar 519684 Mumbai Mirror English Mumbai 512374 Dainik Jagran Hindi Delhi 493748 Hindustan Times Hindi Patna 468186 The Telegraph English Kolkata 418813 Bartaman Bengali Kolkata 408759 Bhaskar Dainik Hindi Jaipur 407144 Sakal Marathi Pune 358158 Malayala Manorama Bilingual Kottayam 352659 Navbharat Times Hindi Delhi 340740 23 . Indian Entertainment and Media Outlook.7 19.4 43. 2009.1% 2007 94.4% 50.3% Source(for Exhibit 2 and 3): PricewaterhouseCoopers.3 2005 62.5 11.1% 58.9 98.8 98.5% CAGR 2004-08 12.51).3% 45.5% 56.0% 128.8 7.5% CAGR 2004-08 17.5 11.7 15.

IIM ABC CONSULTING REVIEW .Sandesh Times of India Punjab Kesri Deccan Chronicle Ajit Sangbad Pratidin Maharashtra Times Pudhari Daliy Jag Bani The Tribune Jagran Dainik Jagran Dainik Eenadu Gujarat Vaibhav Deccan Chronicle Mumbai Chaufer Prajavani Bhaskar Dainik The Thanthi Daily DNA (Daliy News Analysis) Rajasthan Patrika Lokmat Dainik Hindustan Times Samaj Jagran Dainik Bhaskar Dainik Loksatta Malayala Manorama Gujarat Samachar Jagran Dainik Vijaya Karnataka Aaj Navakal State Times Jagran Dainik Divya Bhaskar Times of India Divya Bhaskar Gujarati English Hindi English Punjabi Bengali Marathi Marathi Punjabi English Hindi Hindi Telugu Hindi English Marathi Kannada Hindi Tamil English Hindi Marathi Hindi Oriya Hindi Hindi Marathi Malayalam Gujarati Hindi Kannada Hindi Marathi English Hindi Gujarati English Gujarati Ahmedabad Bangalore Delhi Secunderabad Jalandhar Kolkata Mumbai Kolhapur Jalandhar Ambala Patna Kanpur Hyderabad Ahmedabad Chennai Mumbai Bangalore Indore Chennai Mumbai Jaipur Mumbai Delhi Sambalpur Varanasi Bhopal Mumbai Ernakulam Mumbai Lucknow Bangalore Varanasi Mumbai Jammu Meerut Vadodara Pune Surat 335593 328346 328124 324570 320245 294815 280446 274838 268825 265794 265609 263592 254911 251670 246275 245139 244681 242609 238954 236678 227017 223082 219601 218969 218729 215908 215005 210621 206484 202415 202371 201898 198367 198292 193418 193213 188155 185773 24 AUDIRE .

Gujarat Samachar Ganashakti The Aj Dharitri Jagran Dainik The Statesman Kashmir Times Gujarat Samachar Sandesh Rajasthan Patrika Udayavani Sandhyanand Lokmat Jagran Dainik Amar Ujala Nava Bharat Economic Times Bhaskar Dainik Navbharat Times Amar Ujala Samaya Lokmat Gujarat Samachar Mid Day Herald Young Leader Hindustan The Times of India Hindustan (Dainik) Times of India Pragativadi Mathrubhumi Mahanagar Sandhya Ishaan Samachar Jagat Bhaskar Dainik Malayala Manorama Sandesh (Baroda Edition) Prabhat Khabar Tarun Bharat Gujarati Bengali Hindi Oriya Hindi English English Gujarati Gujarati Hindi Kannada Marathi Marathi Hindi Hindi Hindi English Hindi Hindi Hindi Oriya Marathi Gujarati English Hindi Hindi English Hindi English Oriya Malayalam Hindi Hindi Hindi Malayalam Gujarati Hindi Marathi Surat Kolkata Kanpur Puri Jalandhar Kolkata Jammu Rajkot Surat Jodhpur Manipal Pune Nagpur Agra Delhi Raipur Delhi Raipur Mumbai Meerut Bhubaneshwar Pune Baroda Mumbai Ahmedabad Ranchi Ahmedabad Lucknow Hyderabad Cuttack Ernakulam Ghaziabad Jaipur Panipat Thiruvananthapuram Baroda Ranchi Belgaum 185717 185634 183071 176925 176223 172366 172183 166128 166078 161288 159626 158907 158680 158450 157893 156946 156446 155141 154919 154004 153335 153289 152798 152603 151200 150025 149998 147388 146487 145629 145058 145000 144862 144458 144033 142943 139454 139034 25 .

IIM ABC CONSULTING REVIEW .Telugu Jaatiya Dina Patrika Vaartha Telugu Mathrubhumi Herald Young Leader Deccan Chronicle Sandesh Uttar Banga Sambad Raj Express Aaj Malayala Manorama Herald Young Leader Jagran Dainik Economic Times Hindustan Times Bhairao Times Mathrubhoomi Eswar Lokmat (Dainik) Bhaskar Dainik Jagran Dainik Matru Bhasa Bhaskar Dainik Mathrubhumi Mathrubhumi Mathrubhumi Malayala Manorama Aaj Kall Nav Jyoti Sakal Amar Ujala Bhaskar Dainik Ratnagiri Times Siraj The Hindu Business Line * (PF 13 DPP) Malayala Manorama Rashtra Doot Ajit Samachar Sanmarg Nyayadheesh Hyderabad Malayalam Thrissur Hindi Mehsana English Bangalore Gujarati Rajkot Bengali Darjeeling Hindi Bhopal Hindi Patna Malayalam Trichur Hindi Surat Hindi Ranchi English Mumbai English Mumbai Marathi Ratnagiri Malayalam Kozhikode Oriya Bhubaneshwar Marathi Thane Hindi Jodhpur Hindi Dehradun Oriya Cuttack Hindi Chandigarh Malayalam Thiruvananthapuram Malayalam Calicut Malayalam Kottayam Malayalam Kollam Bengali Kolkata Hindi Ajmer Marathi Kolhapur Hindi Kanpur Hindi Hissar Marathi Ratnagiri Malayalam Kozhikode English Chennai Malayalam Calicut Hindi Jaipur Hindi Jalandhar Hindi Kolkata Hindi Allahabad 137621 137606 136125 136048 135892 135354 135142 135126 133526 133000 131190 130814 130751 130349 128687 128000 127864 127852 127310 127222 126131 124467 122502 122380 122055 121340 119255 118870 118867 118177 117863 115808 115249 114926 113608 113545 113318 112802 26 AUDIRE .

from http://www. Circulation No. (10388) (As retrieved via access on 15 January 2010. Circulation No.Jagran Dainik Sandhya Kal Vijay Times Anupam Bharat Pratahkal Yeshobhumi Dina Malar Nava Bharat Prajatantra Nav Jyoti Sambad Kalika Mahka Bharat Jagran Mangalam Nava Bharat Kholadwar Jaipur Mahanagar Times Pratan Kaal Amar Ujala Utkal Mail Vir Arjun Daily Rajasthan Patrika Bhaskar Dainik Samyuktra Karnatak Malayala Manorama Hindi Marathi English Oriya Hindi Hindi Tamil Hindi Oriya Hindi Oriya Hindi Hindi Malayalam Hindi Oriya Hindi Hindi Hindi Oriya Hindi Hindi Hindi Kannada Malayalam Gorakhpur Mumbai Bangalore Chhatarpur Mumbai Dharavi Chennai Nagpur Cuttack Kota Bhubaneshwar Jaipur Bareilly Kottayam Mumbai Phulbana Jaipur Udaipur Dehradun Rourkela Delhi Udaipur Jabalpur Hubli Palakkad 112720 112673 109897 108200 107948 107855 106342 106149 105959 105630 105005 104825 104713 104589 104523 103858 102841 102683 102277 102181 101514 101440 101137 100721 100569 Source: Ministry of Information and Broadcasting. Govt.indiastat. Circulation No. Circulation 219 14042175 264 9013830 298 425 11197123 6428026 685 235 16134142 2414915 1202 41373440 924 17856771 Centre of Publication 2000 Metropolitan Cities State Capital 27 . of Exhibit 5: Circulation of Newspapers in India Centre-wise Circulation of Newspapers in India (2000 and 2002-2003 to 2006-2007) Dailies. Tri & Weeklies Others Total Bi-weeklies No.

indiastat. 28 AUDIRE .IIM ABC CONSULTING REVIEW . (10388) (As retrieved via access on 15 January 2010. from http://www.Union Territory Big Cities Small Towns Total 2002-03 Big Cities Metropolitan Cities State Capital Small Towns Union Territory Total 2003-04 Big City Metropolitan City State Capital Smaller Towns Union Territory Total 2004-05 Big City Metropolitan City State Capital Smaller Towns Union Territory Total 2005-06 Big City Metropolitan City State Capital Smaller Towns Union Territory Total 2006-07 Big City Metropolitan City State Capital Smaller Towns Union Territory Total 17 912776 950 33973098 73 1971448 1523 59913327 1249 223 417 13 29 1931 42215878 14443053 15748776 156542 922099 73486348 15 1553 96 2387 1894 317 544 38 15 2808 1295 303 477 25 8 2108 1568 373 639 37 10 2627 2102 432 842 41 11 3428 1796 478 872 53 11 3210 163664 18691482 802700 37282995 19360296 12976639 8304807 123673 213824 40979239 14759096 11839374 7680788 172538 90297 34542093 17800537 14490343 9380897 364836 127381 42163994 22883548 15876088 11363987 270374 186651 50580648 22720476 16645455 12096657 419814 199689 52082091 30 974 81 2005 1133 825 394 15 50 2417 735 652 316 13 18 1734 1181 986 495 38 24 2724 1395 974 492 43 11 2915 1403 1087 554 37 10 3091 88752 10713310 416322 29767441 10343676 13759903 3227576 73191 135610 27539956 7852564 13022432 2866423 37917 52272 23831608 12120195 16657320 6170937 287509 76115 35312076 14862184 20770766 4885796 173882 36089 40728717 15388215 18926407 5923416 152906 29539 40420483 62 1165192 3477 63377890 250 3190470 5915 126963763 4276 1365 1355 66 94 7156 3132 1187 1172 55 45 5591 3858 1635 1563 113 56 7225 4818 1720 1813 114 47 8512 4601 1915 1994 119 46 8675 71919850 41179595 27281159 353406 1271533 142005543 64783879 40152641 26574438 617328 959302 133087588 72315364 48386027 33339855 1574761 1103202 156719209 86808524 56833229 34859103 1118420 1119335 180738611 91317564 56445068 41237859 1596192 1480711 192077394 1102 42172219 232 15290835 379 16027227 17 406873 19 816733 1749 74713887 1109 42394632 276 17238364 429 17788021 38 922416 22 899706 1874 79243139 1321 314 479 30 25 2169 1402 350 568 29 25 2374 49062792 20186375 18609320 674164 896595 89429246 53208873 20873206 23217786 1023472 1251483 99574820 Source: Ministry of Information and Broadcasting. of India.

com/news/2009/feb/27/goodbye-colorado/ 29 . (February 2009).Source: Rocky Mountain News. from http://www. Goodbye Colorado.rockymountainnews. Retrieved on 16 January 2009.

09 6.02 46.51 The Telegraph 30.91 DNA 13.47 63.14 61.indiastat.73 7.35 4.51 106.IIM ABC CONSULTING REVIEW .45 59.77 5.28 The Economic Times 20.46 The Hindu 55.64 5. 2002-2003 to 2006-2007) Tri/BiWeeklies Others Total weeklies 257 9621 17107 30214 271 10375 17809 31957 275 11136 18461 33612 294 11973 19291 35601 316 12695 20007 37254 317 13624 20755 39149 325 14743 21918 41705 331 15645 22962 43828 337 16872 24289 46655 339 17749 25693 49145 348 18582 27392 51960 358 361 364 368 374 19631 20329 20831 22008 22113 29825 31492 32688 33307 35380 55780 58469 60413 62483 64998 Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 1. (10388) (As retrieved via access on 15 January 2010. Exhibit 8: Top Ten English and Top Ten Hindi Newspapers (readership figures in lacs) Publication 2008 R1 The Times of India 136.3.33 3.68 19.18 5.39 74.57 319.84 49.70 51.66 15.89 Publication Dainik Jagaran Dainik Bhaskar Amar Ujala Hindustan Rajasthan Patrika Punjab Kesri Aj Navbharat Times Prabhat Khabar Nava Bharat (Mah/Chh) 2008 R1 565.64 The New Indian Express 19. Govt.74 267.1.34 5.2003 2003-04 2004-05 2005-06 2006-07 Dailies 3229 3502 3740 4043 4236 4453 4719 4890 5157 5364 5638 5966 6287 6530 6800 7131 % Growth over previous years 6.38 Deccan Chronicle 30.17 15.50 286.53 5. from http://www.57 111.67 14.45 5.2002 to 31.05 54.11 2009 R1 133.04 5.09 136.73 28.69 140.11 Mid-Day (Eng) 17.37 296.77 30 AUDIRE .71 44.83 335.83 2009 R1 545.41 Hindustan Times 63.77 Mumbai Mirror 15. of India.13 251.83 15.43 3.18 27.41 53.82 3.Exhibit 7: Number of newspapers in circulation Number of Newspapers in India (1991 to 2001.91 4.86 Source: Ministry of Information and Broadcasting.

2% 168.2% 2010 f 122. from http://www.8 3.2% 2010 f 154.4 5.7 -2.75 60.60).8 9.4% 2012 f 178.4% 2012 f 145.5% CAGR 2009-13 5.5% 2009 f 146.5 10.2 5.0% 27. billion Newspaper Publishing % Change Magazine Publishing % Change Total % Change 2008 140.7% 1.77 73.82 59.6 3.1% CAGR 2009-13 8.5% 191.8 5. (2009.5 8.5% 61.6 % 161.0 8.2% 57.0% 21.1 7.pdf 31 .5 9.5% 24.Exhibit 9: Top Ten Magazines (readership figures in lacs) Periodicity Magazines Readership 2208R1 2009 R1 Fortnightlies Saras Sali 97.1 7.2% 2013 f 184. Indian Entertainment and Media Outlook.8% 2011 f 133.19 language Hindi Tamil Tamil Malayalam Hindi Hindi Hindi Tamil Hindi Exhibit 10: Forecasted growth for Indian Print Media (newspapers and magazines) In Rs.6 4.69 Monthly Meri Saheli 59.8% 59.1 5.65 Weeklies Kumudam 74.4% 205.2 5.4 7.1% 58.8 7.0 4.97 Weeklies India Today 66.5 4.3 3.7 7.4% 191.9% 55.8% 2011 f 166.36 49.3% 205.1% 168.6% Exhibit 11: Forecasted growth for Indian Print Media (circulation and advertising) In Rs.96 Fortnightly Vanitha 59.1% 5.58 Weeklies Kungumam 73.6 3.9 6.0% Source: PricewaterhouseCoopers.8% 213.0% 22.3% 178.4 4.2% 2013 f 152.01 44.4 2010.5% 2009 f 111.6 3.5 7.3% 213.61 54. p.8 7.1% 161.1% 5.5 7.0 10.7% 178.15 Weeklies Ananda Vikatan 56.8% 23. Retrieved January 15. 2009.56 Fornightly Grih Shobha 53.7% 28.43 Monthly Cricket Samrat 52.5 4.6 4.15 49.0 -2. billion Print Industry Advertising % Change Print Industry Circulation % Change Total % Change 2008 103.7% 6.7% 57.1 7.8 6.45 66.

India moved to the stage of 'creative imitation' where the focus was on developing molecules equally effective as the patented one through a process which doesnot infringe on the patent. Before the patent protection came into effect. We examine the various emerging opportunities and recommend strategies to capitalize on these opportunities for sustainable future growth. Thereafter ensued. the age of duplicative imitation with the legalization of reverse engineering via Indian Patents Act. It was then that the Indian firms were ramping up their basic R&D as well as mass production abilities. in the last two decades. The pharmaceutical sector is worth around $9 billion now and according to a McKinsey report is slated to touch $ 20 billion by 2015! The foreign giants have already started competing on Indian turf for a slice of the generics pie. Introduction India. if not all. to say the least. medicines on your prescription would be imported or at least MNC-made. The choice always obviously was between curing the poor man's whooping cough and letting the MNC mint huge profits.Indian Pharmaceuticals Industry: Evolution And The Road Ahead one of sparse patent protection and sizeable drug manufacturing infrastructure. the patent laws were failing to create any long-lasting value in the absence of any effective expertise-protection. Companies Abstract This article takes a look at the way the Indian pharmaceuticals industry has evolved and challenges faced by the generics strategy. This was the age of generics. However. India was almost the emancipator of the developing and the underdeveloped nations providing the poor singlehandedly with a large share of their drug requirements. 1970. The slow but steady transition of the Indian pharmaceutical industry has been well documented by Kale and Little (Figure 1 below).IIM ABC CONSULTING REVIEW . The Journey So Far The story of Indian generics had for long been 32 AUDIRE . This is how the Indian companies' developed diverse production capabilities ranging not just from generic production of a vast array of molecules but also Research and Development. a healthy growth despite severe business cycles and more specifically due to sweeping reforms in most sectors. has like several other emerging economies been the subject of much global interest courtesy its strong economic fundamentals. This led to the aggregation of a robust knowledge base with Indian firms. The pre-1970s era was an era when most. With the pharmaceutical markets opening up in mid-1990s. Indian companies which have always had the home advantage will now be up against a stiff challenge. This ability is still holding them in good stead as this gives a clear stronghold on not just Indian turf but also an enviable share in the American generics business.

However. one of the pointers to the slew of change has been the conquest of US generics market led by Ranbaxy and followed suit by others. They have also adopted the strategy of selling 'branded' (but not patented) versions of their original formulations at higher prices. The Indian giants chose to innovate. when caught in the whirlwinds of tightening regulations and opening domestic competition. All this while still retaining a strong focus on developing-economies generics market which has so long been an indefatigable revenueearner. Faced 33 .like Dr. This was but a natural outcome of the capabilities that Indian firms were coming up with over the years. The winning strategy that was based on the successful formulation of generics is threatened by the fact that the big pharmaceutical companies are trying to beat the Indian manufacturers at this g ame. Foreign pharmaceuticals companies have attempted to enter the generics space by introducing 'authorised generics'. albeit in an innovative fashion! The model adopted has been an 'imitation to innovation' model whereby the aim is to come at equal terms with foreign R&D-based companies reformulation in the light of several emerging factors which complicate the business environment for the Indian pharmaceutical companies and place significant challenges in their path. Korea etc. In fact. Now that the industry is tightly regulated and patent protection is in place. Foreign pharma giants' strategy to enter new markets is also another cause for concern. This has led to brutal pricing pressures in the US markets. Reddy's Laboratories and Ranbaxy made the most of the opportunity. New Challenges The successful strategies the Indian pharmaceutical companies were following so far are faced with a need to rethinking and Innovative R&D NCE research Analogue research NDDS Generation Improvement Intermediate capability Assimilation Generics R&D Acquistion Improvement Assimilation Creative Imitation Collaborative R&D Acquisition Improvement Assimilation Duplicative Imitation Basic capability Acquisitio Reverse engineering R&D Basic Knowledge Base Complex Knowledge Base Figure 1 : Transition of the Indian Pharmaceutical Industry quite as much as in several other emerging economies like Brazil. this stage has now seamlessly merged into the stage of collaborative R&D where India is making the entire world sit up and take notice of it as a potential R&D partner due to the inherent cost advantages and technological capabilities. an indigenous industry's survival strategy can either be to innovate rapidly to create a competitive advantage or do more of the same in more efficient ways. the dynamics of the industry have changed completely. although still not A d va n ce Capability rather than to open up new frontiers. However.

32 .


IIM ABC CONSULTING REVIEW .with meager growth rates of 3-4% in their own markets (global pharmaceuticals market is worth about $800 billion. willing to enter into these partnerships with the understanding that they will. $300 billion). One major strength that has resulted for them from this process of sequential move up the value-chain is that they have developed strong capabilities for manufacturing process innovations. The global multinationals with deep pockets have the ability to indulge in predatory pricing to gain footholds in these attractive growing markets and hence pose serious threats. namely. The Road Ahead The Indian generics industry is at such a crucial juncture where there are as many opportunities as challenges. the fact that the prevalent 'blockbuster drug discovery' model is already facing pressures of maturity makes it imperative that Indian firms also look at alternate innovation models. Most Indian companies are hence. expertise in original drugdiscovery. This is of strategic importance to them at the present situation. The so called 90/10 rule in the pharmaceutical industry refers to the fact that about 90% of pharmaceutical research funding is directed 36 AUDIRE . It is quite simple to comprehend that a patent-protected industry can well be a blessing in disguise if the concerted R&D efforts of these companies were to bear fruit. Little and Kale. through the use of the capability creation model have displayed that the Indian pharmaceutical companies have sequentially built increasingly more valuable and sophisticated research and development capability through the stages of reverseengineering. This opportunity is to be taken by the Indian companies as partnering will provide them with the scope to build the competencies that the global majors have built up. the emerging challenges also necessitate the adoption of forward-looking strategies which will place the Indian pharma companies on the path of sustainability and future growth. they are aggressively entering India (a market worth $8billion but growing rapidly at around 14%). Hence the preferred mode of partnering is marketing-cummanufacturing alliances to sell drugs in emerging markets. However. the 'Blockbuster Drug-Development' model is showing signs of maturity with increasingly lower chances of ensuring superior profitability. duplicative imitation and creative imitation. Also the generics business is becoming increasingly competitive with challenges from other generics players like TEVA and Watson who compete at the higher end of the generics market. in future embark independently on the path of original drugdiscovery once they learn the relevant skills from their foreign partners. The fact that they have mastered low cost production makes two strategies particularly attractive – these are those of focusing on neglected diseases and the PPP (Public Private Partnership) model. However. This is so because as the predominant innovation model so far followed by major global pharma companies. With an estimated $60 billion of drugs going off-patents by 2013. The fact that India promises high-quality research manpower at low costs (resulting in the cost of a drug –development in India being about one-tenth of that in the US) and immense opportunities for inexpensive clinical trials are also making Indian companies attractive targets for research partnering and outsourcing. The stakes are high as post patent-protection the market now resembles a winner-takes-it-all game. global pharma majors are looking to partner with Indian companies in the R&D space to gain insights into process innovations. there is undoubtedly opportunities for profit in the generics business and Indian pharmaceutical companies are expected to continue to play well the game they have mastered over so many years. US.

in References 1. He holds a Bachelors degree in Electronics and Communications Engineering from Vellore Institute of Technology and can be reached at kunal. Indian companies need to focus more on this avenue as their low-cost production abilities make them particularly suitable as manufacturers of drugs for poor Kunal Deep Bhagat is a 2nd year PGP student at IIM Bangalore. partnering with governments surely promise greater opportunities for advocacy and hence advantages with regard to regulation. Conclusion Indian pharmaceutical companies have built critical competencies through the various stages of different innovation models that they have employed. He holds a Bachelors degree in Aeronautical Engineering from IIT Kharagpur and can be reached at chinmaya. Reddy's laboratories and several more are not just establishing research and production capabilities for biogenerics (through collaborations. national health systems and international humanitarian agencies.biogenerics.sharma09@iimb. we expect that in future Indian pharma companies will increasingly evolve from being generics competitors to being research-partners .ceutical Innovation in Developing Countries— The Case of Indian Pharma”. The key to success will be to leverage on one's acquired strengths and competencies and adopt strategies which are best suited to those abilities. Joanna. Indian entities like Matrix Laboratories. clinical trial outsourcing service providers.ernet. Technology Analysis and Strategic Management. ernet. David. No.ganguly09@iimb. Dr. Hence. Vol.5. manufacturers of drugs for neglected diseases and partners in PPPs. biogenerics players . Also. Indian firms have already taken advantage of this need-supply gap by being active in the field of vaccine development (neglected as a low profit opportunity by global majors). These give firms an opportunity to be parts of global coalitions and benefit from knowledge sharing with other organizations and the academia. The growth of biotech has matched or surpassed that of pharmaceuticals every year since 2000 and herein lies another opportunity for the Indian companies. Joyce and Weld. Such partnerships have clear advantages. Indian companies need to explore this avenue more.ernet. September 2007. The future requires them to evolve with new strategies and innovation systems. This essentially means that the diseases afflicting the people in poor countries are neglected in terms of drugdevelopment research.19. The research in neglected drugs is also attractive as these drugs can be developed through the novel organizational framework of PPPs. About the Authors Abhirup Ganguly is a 2nd year PGP student at IIM Bangalore.IIM ABC CONSULTING REVIEW 37 .towards the diseases which typically affect about 10% of the global population. Malaria and TB and funding is available through organizations like the Gates Foundation etc. Tait. 697-708 AUDIRE .in Chinmaya Kumar Sharma is a 2nd year PGP student at IIM Bangalore. Chataway. Such partnerships already exist around diseases like HIV. essentially by partnering with governments. research-outsourcing service providers. “Frameworks for Pharma. takeovers or in-house) but are also engaging in establishing frontends on foreign soil so as to be able to expedite and lubricate the marketing chain in no time.bhagat09@iimb. He holds a Bachelors degree in Chemical Engineering from Jadavpur University and can be reached at abhirup.

the majority are Asian. Emerging economies are not merely challenging the lead in innovation. the majority of corporations in the Top 25 are based outside the US. 15 are Asianup from just five in 2006. Emerging economies are not merely challenging the lead in innovation. the corporate funding of R&D in China has reached the levels found in the West. Yet very few companies can create significant shareholder value through breakthrough product unlocking the 'bottom-ofthe-pyramid' fortune.The Power to Disrupt Abstract The world of business innovation is at a major crossroads. as they spread to the rich world. made in U. products defeatured. individual innovations may matter less than the institutional capacity to sustain a series of REVERSE INNOVATION Phase 1 U. There's a marked difference in the concept of innovation in the West and in emerging markets. Companies that start out with limited capabilities can rapidly build them over time through a series of modest product and process innovations. it typically focuses more on products than on processes and mostly on big bang breakthroughs than incremental changes. its biggest anywhere in the world. Fortune 500 companies now have 98 R&D facilities in China and 63 in India. Supercomputers.IIM ABC CONSULTING REVIEW .up from just 5 in 2006. In fact. Among the 50 most innovative companies in the world today. In another equally interesting report published by the OECD. blockbuster pharmaceuticals. most economic wealth comes from more modest ones that accumulate over time. made in EM to EM Phase 3 Local Design. made in EM for EM Phase 4 Local design. they are using concepts like reverse innovation to game-changing effects. have used process innovations to game-changing effects. shaking many industries to its foundations. which help a company sustain its competitive advantage. for instance. It's time we rethink innovation. Even more important are process innovations. These developments are a testimony to a major GLOBALIZATION/GLOCALIZATION inflection point in the history of innovation. It's time we rethink innovation How emerging markets are driving global innovation In the world of business innovation. a paradigm shift is underway.S.S. Dell and WalMart. The developing countries on the other hand have taken a more holistic view towards innovation that values incremental changes. they are unleashing a wave of disruptive breakthroughs that are. In the 2010 Bloomberg Business Week's annual ranking of the 50 most innovative companies in the world. made in EM for the world Figure 1 : Paradigm shift in Business Innovation 38 AUDIRE . This article takes a look at how competitive leadership in systematic innovation is gradually shifting from the West to the emerging markets. Ultimately. General Electric's healthcare arm has spent more than $50 million to build a R&D centre in Bangalore. product defeatured. The realm of competitive leadership through ingenuity in process and design which has so far been the exclusive province of the West is shifting to the emerging markets. for the first time in the history of the rankings. for EM Phase 2 U. nanotechnologyinnovations like these capture popular imagination in the West.S. When the US thinks innovation. Microsoft's R&D centre in Beijing is its largest outside its American headquarters in Redmond.

Yet even these figures understate the change that is taking place within. Buyers in poor countries demand solutions on an entirely different price-performance curve. India and China.000 4.Getting richer faster GDP. The fundamental driver of reverse innovation is the income gap that exists between the emerging markets and the rich countries.or a ruin. Soon every factory around the world was lean. The emerging world is enjoying the most spectacular growth in history. A reverse innovation is any innovation likely to be adopted first in the developing world. Emerging market consumers have been outspending the Americans since 2007.000 5. In the case of local markets with idiosyncratic preferences. Dubbed 'lean manufacturing'. by last year their share of global consumption had gone up to 34% against America's 27%.000 3. This United States Advanced economies 95 2000 05 10 14 1980 85 90 Exhibit 1 : GDP. And it pushes the two familiar ideaseconomies of scale and self-reinforcement beyond their previously existing limits. Companies are starting with the needs of some of the world's poorest people and redesigning not just products but entire processes to meet those needs profitably. Today it's hardly news that the world's centre of economic gravity is shifting to the emerging markets.000 2. They want new.000 1. % change on previous year Source: IMF improvements and the pace at which they are developed and disseminated through the network. high tech solutions that deliver ultra-low costs and 'good enough' quality. This has been called 'frugal' or 'reverse' innovation for it begins with not the consumer but the nonconsumer at the 'bottom of the pyramid'(BOP) population.2013) 39 . About 70% of the world's growth in the next few years will come from these markets with 40% coming 6. there is something refreshingly different about the nature of this change.000 0 2008 2009 2010 Africa & Middle East Rest of Asia Pacific Indian Sub-Continent Far East & China Eastern Europe Western Europe South America North America 2011 2012 2013 Figure 2 : Total service provider mobile money transfer revenue opportunity per annum in $ million (Regional Forecast 2008 . Its share of global GDP at purchasing power parity increased from 36% in 1980 to 45% in 2008 and looks set to reach 51% in 2014. it helped Japanese carmakers displace American giants Ford and GM as the world's leading car producer. % change on previous year 10 F'CAST Emerging markets 8 6 4 2 + 0 2 4 from just two countries. it is often difficult to successfully introduce a product tailored for US mass consumption. While it is true that developing countries are becoming the new epicentres of innovation. The earliest to adopt this paradigm successfully were the Japanese in the 1970s.

(ii) Glocalization. The results have been far reaching. Tata Motors has developed the world's cheapest car Nano for $2000. Developing countries are becoming hotbeds of reverse innovation in much the same way as Japan pioneered lean manufacturing in the 1980s. As teams develop products for the local market the company enables them to remain connected to and benefit from the global resource base. Africa. for example. Innovation still originates with home-country needs. the same paradigm is being pushed to include specialized areas like banking and healthcare. Emerging markets are replete with frugal products and services that have generated significant economic value from the bottom of the pyramid. which demonstrated that economies of scale and scope could be reaped from services that are Tata NANO . Evidently.Once tested and proven locally. The evolutionary process of reverse innovation can be seen in four distinct phasesi) Globalization. This had started with India's outsourcing firms. Companies take a 'market-back' perspective.Companies build unprecedented economies of scale by selling products and services to markets all around the world. is the world's leading market in mobile money.IIM ABC CONSULTING REVIEW . most companies soon realize that while globalization has minimized costs.However. they are not as competitive in local markets as they need to be.makes it necessary to cut costs to the bone and eliminate all but the most essential features of a product or a service. Companies need to squeeze costs while maintaining quality and accept thin margins to gain volume. It therefore becomes necessary to adapt global offerings to local needs. Not only has it helped companies gain access to a much larger market but also created entirely new categories of services through technical and business model innovations. (iv) Reverse Innovation. Now. ITC has created a new market ecosystem for rural Indian farmers through its 'E-Choupal' platform.In this phase the focus is on developing products in-country tailored to local needs. (iii) Local Innovation. and even cannibalizing higher-margin products. establishing lower price points. but products and services are modified to win in each market. starting with a zero-based assessment of customer needs and delving further into product and design. it involves rethinking entire production processes and business models.Innovation through a small car (Saving Details) Low Vehicle Content 0% 1% 3% 16% 17% Low cost designs Low Cost Labor Co-location of Suppliers Utilization of non-traditional Suppliers (starting from lower cost base) 63% Figure 3 : Tata Nano . Perhaps we should take a closer look at some of these products along with their supporting 40 AUDIRE . One way to do this is to apply mass production techniques to sophisticated services.Innovation through a small car (saving details) highly fragmented and geographically rooted. Frugal innovation is not just about redesigning products at dramatically lower costs. GE has designed a hand-held ECG which reduces monitoring costs to just $1 a patient. Innovation happens at home. and then the new offerings are distributed everywhere through vast channels. products developed in-country are scaled up for worldwide use which involves pioneering radically new applications. there is more to this than simply cutting costs to the bone.

As a result the mobility industry is seeing frugal innovations in the form of low cost $15 handsets. The ability to use a mobile device for financial activities. The Nano's business model is aimed towards new market disruption at the bottom of the pyramid. It is driven by a state-of-the-art algorithm but excludes all the associted frills. Mobile money has successfully disrupted traditional banking in African markets. Cell phones also serve as a platform for social innovation in emerging markets. The Nano did not start with the were withal to develop the world's cheapest car. The Narayana Hrudayalaya Hospital in Bangalore.7% per year compared to 6. sharedphones. The multiple buttons on conventional ECGs have been reduced to just four. the most remarkable instances of reverse innovation are coming not from automobile or healthcare but from the communications and high tech industry. The device. Dr. the Bill Gates Foundation in partnership with a worldwide consortium of mobile industries announced the 'Mobile Money for the Unbanked' (MMU) initiative with a goal of supplying 20 million people with mobile financial services by 2012. The hospital charges about $2000 for open-heart surgery against $20000-$50000 in America with equal success record. Mobile payments are poised for a viral effect in these markets for it allows for smalldenominated and frequent top-ups that fit the need of a cash-starved population. It sells for $800 compared to $2000 for a conventional ECG and reduces the cost of ECG to just $1 per patient. A better example still would be the portable ultra-cheap electrocardiogram developed by General Electric's R&D centre at Bangalore. From automobiles to AUDIRE .banking as well as payments is of immense value in underdeveloped markets where traditional financial services are absent. However. Devi Shetty. ultracheap call rates and mobile financial services. The Grameen Foundation has launched the 'Village Phone' business in rural Bangladesh. Mass production techniques are being applied in new and unexpected ways with surprising results.9% in the best American private hospitals. The bulky printer has been replaced by tiny gadgets used in portable ticket machines. Consider the Tata Nano. The healthcare industry is rife with frugal innovations of similar kinds. it instead focused on a reverse exploratory process. The entire enterprise is surprisingly profitable given the number of poor people it treats. It records a profit of 7. Its value proposition is offering a safe. telecoms are increasingly looking at emerging economies as their next growth drivers. has drastically reduced the cost of heart surgery through economies of scale and specialization. In 2009. founded by India's most celebrated heart surgeon Dr. And in the process it improvised not just the product but its entire value chain to become the most competitive low-cost car manufacturer. It had identified tremendous opportunities in the existing price gap between cars and two-wheelers and positioned itself to address this void. four-wheeled vehicle to a BOP customer at marginal costs. Reverse innovation is already making its presence felt in the West.ecosystem innovations. Shetty and his team perform about 600 operations a week. As the developed markets become more saturated. a critical mass that gives rise to endless opportunities.IIM ABC CONSULTING REVIEW 41 . setting up microfinance loans to villagers without any access to telecommunications. called Mac 400. It took the cheapest available incumbent in the market Maruti 800 as the base model and worked backwards to reduce costs using lean principles and non-traditional resources. There are now over 4 billion mobile phone users around the world. The sheer number of patients allows surgeons to acquire world-class expertise in particular operations and the generous back-up facilities allow them to concentrate on their speciality instead of wasting time on administration. The whole thing is small enough to fit into a backpack and can run on batteries as well as on the mains. is a masterpiece in frugal innovation.

GE's $800 ultrasound device. This year around 6 million Americans are expected to travel to developing countries for affordable † † Quoted by Anand Mahindra. has become the basis of a global business. originally developed for Chinese emerging market companies are moving up the value chain. adding to the already formidable repository of cheap and abundant brainpower. The dreams for the future "are not just colourful but steroidal". He holds a Bachelor's degree in Instrumentation and Electronics Engineering from Jadavpur University. The potential market is huge. As the US and European markets emerge from recession. profligacy is giving way to austerity. Calcutta and can be reached at The Tata Nano plans to introduce its no-frills European version in 2011. Frugal innovations may well prevent America's health- 42 . Frugal innovation will encourage.iimcal. By 2018 China will produce 10 million graduates per year and India around 6 million. rather than undermine consumer innovation in the rich Count your consumers Population forecasts. Africa Europe Latin America North America 2010 2030 2050 Figure 4 : Count your consumers Source: United Nations Population Division world. populations are enormous and hundreds of millions of people are expected to enter the middle class in the coming years. bn 0 Asia 1 2 3 4 5 6 1 care system (which consumes 17% of its GDP) from swamping the rest of the economy. And companies which once found their fortunes at the bottom of the pyramid will move significantly upwards as the emerging world would have fully emerged. Chairman M&M About the author Riddhiman Kundu is a 2nd year PGP student at IIM Calcutta. Governments are increasing taxes and cutting back on debt-fuelled consumer spending. Cheaper goods and services will be a blessing for the West which faces increasing deficits and a rapidly ageing population. The West is also ripe for frugal innovation. Emerging markets on the other hand will continue to hold the lead in innovation at least for another decade.

notably those of China and India. and may play in the future. 2009) In this context of the much awaited summit being perceived as having failed in its objectives of fueling a new climate change treaty. Along with other initiatives such as inter-state renewable energy certificates trading and incentivizing generation of wind power as opposed to merely capacity installation. December 2009). At the same the above developments would facilitate growth in the Indian wind energy sector in the near future. which imposes binding emission cuts on developed nations which have been the primary source of global warming since the mid-19th century while developing nations remain outside the ambit of legally binding emission cuts. The Kyoto Protocol (http://en.wikipedia. Crucially. The Copenhagen Summit and Wind Energy Copenhagen saw the emergence of a distinct sense of optimism as far the potential of wind energy towards combating climate change is concerned. were seen to have moved away significantly from their oft stated position on climate change mitigation by committing to non-binding emissions reductions for the first time. The Global Wind Energy Council (GWEC) The most significant treaty to emerge out of climate change negotiations was the Kyoto Protocol of 1992 which set the tone for dealing with the issue for the next two decades. there are ever more vociferous calls from the developed country bloc that these countries be made accountable for their emissions too.Climate change negotiations and its links with Wind Energy Abstract Global climate change negotiations and India's position therein have paved the way for the formulation and implementation of a national policy framework for wind energy. a development leading to many environmentalists labeling the meet as an abject failure. even as no binding agreement or even the framework of a possible agreement emerged from the conference. wherein China has already overtaken the US to become the largest emitter of greenhouse gases in the world. some developing nations.stm. (http://en. 2010) The Copenhagen Summit The Copenhagen Conference was held in Denmark in December 2009. The adoption of the National Action Plan on Climate Change and the provisions for a National Renewable Portfolio Standard contained therein would further strengthen the Clean Development Mechanism and facilitate technology Kyoto_protocol) declared its commitment to cut its carbon emissions by 20 to 25% by 2020 over 2005 levels (Pasricha. as some of the developing nations' economies have expanded. The Kyoto Protocol laid the key principle of common but differentiated responsibility. no legally binding emissions cuts were decided on for the developed for instance.IIM ABC CONSULTING REVIEW 43 . (news. India. let us examine the role wind energy may have played. led by China and India. in leading to a more concrete outcome as far as climate change negotiations are concerned. while China asserted that it will cut the carbon intensity of its economy by 40-45% on 2005 levels by AUDIRE . However.

2010) Based on our reading of their views and analyses. the change in India's stance complements 44 .net. the remarkable growth in wind energy capacity is implied by the fact it stood at 121 GW at the end of 2008.estimates that emissions reductions of at least 25-40% below 1990 levels are required to avoid the worst impacts of climate change. In fact. global wind energy alone could contribute 34% of a 25% emissions reduction and 21% of a 40% emissions reduction. (Ishan Purohit and Pallav Purohit.windpowerworks. India's declaration regarding voluntary emissions cut (albeit not subject to international verification) can be seen as signaling India's intent to combat climate change and may in fact be the catalyst for a new thrust to wind energy generation in the country As pointed out by the GWEC in the Copenhagen Summit. 2009) The failure to harness the full potential of wind energy can be attributed to the glaring absence of a legally binding international treaty for emissions reductions. while promoting the use of this renewable resource by means of formulating clear policy directives. out of which 47 GW was added in 2007 and 2008 alone. an ambitious though notably elusive goal. Thus. The barrier stated herein stands to be overcome by this announcement. The resulting ambiguity and lack of national policies has led to absence of investor interest in the industry. is consistent to a remarkable degree with the aim of establishing a global wind energy-led renewable energy renaissance. (http://www. as well as assist developing countries' often ambitious programs to decarbonize their electricity systems with both public finance and private investment through the carbon markets. it seems clear that the goal of securing a legally binding treaty on climate change and emissions reductions. the GWEC stresses on the following points as regards wind energy's use in combating climate change: · The potential for reduction of emissions by developed nations is much greater than claimed by them if wind energy is harnessed. GWEC further goes on to add that the wind energy sector stands ready to contribute a total of 10 billion tons of CO2 reductions by 2020 and asserts that industrialized countries can and must review their pledges for reduction targets and raise them very substantially. The view of wind energy as being a sustainable substitute for fossil-fuel based energy has grown significantly in the last two years due to significant additions to wind power potential worldwide and marked improvements in technology. diffusing complex technology and enhancing investor interest. Our view is that climate change negotiations provide a significant window of opportunity to use the potential of wind energy to push for more meaningful talks on climate change addressing the issue of emissions cuts. · · · Thus. Revisiting the Copenhagen Summit Various implications can be attached to these recent developments on climate change as regards developments in the wind energy sector in India: · Quite apart from not receiving much by way of reciprocation by the developed nation bloc. With wind energy technologies that are available now. adopting national frameworks for implementation. the major barriers to successful and large-scale exploitation of wind energy in the world consist of lack of all encompassing national policies and technology.

IIM ABC CONSULTING REVIEW 45 . Impact on India's Wind Energy sector: Government. besides providing an important Target 2003-07 (MW) 2200 550 725 37 2 70 3584 Actual 2003-07 (MW) 5426 537 759 26 1 47 6795 Target 2008-12 (MW) 10500 1400 1700 400 14000 AUDIRE . (Pullen et. second only to China. there is no coherent national renewable energy policy to drive the development of wind energy. al. that the NAPCC and recent overtures made by India at Copenhagen mark a shift in the latter. The Clean Development Mechanism (CDM) and Carbon Prices India's new commitments point to an increased use of the CDM under which India had already registered 301 wind energy projects as on March 2009. Table 1 shows renewable energy capacity additions in the 10th and 11t h 5-year Plans.. address issues of harnessing renewable sources of energy. This is urgently needed to realize the country's full potential and reap the benefits for both the environment and the economy. its development has mainly been driven by progressive state level legislation. 2009) It is our belief Table 1:Renewable energy capacity additions during 10th/11th Five Year Plan Technology Windpower Small Hydro (<25 MW) Biomass power/ Cogeneration Biomass Gasifier Solar PV Waste to Energy Programme TOTAL Source: MNRE India has the fifth largest installed capacity of wind power in the world. At the moment. Effective implementation of the CDM. concomitantly. as also wind energy'sshare in the same. Climate Change and Wind Energy Even as India has developed a strong domestic manufacturing base for wind energy (led by Suzlon). with a potential of 5659 MW. provoke result-oriented dialogue and. In this section we propose to revisit some of the main concerns with regard to the wind energy industry and analyze how recent developments in climate ch a n g e wo u l d i n f l u e n c e t h e c o u r s e ofdevelopment of the massive wind energy potential India possesses.its commitments to build a national policy framework to combat climate change.

to a considerable extent. commitments towards cutting domestic emissions may also lead to an upswing in carbon prices. thereby strengthening the carbon trading framework. the CDM also addresses the crucial lacuna currently existing in the form of a lack of a credible technology transfer regime. more recently. Carbon prices had crashed in the aftermath of the credit crisis as developed nations abandoned green technologies and a fall in carbon trading volumes ensued. since wind power generation expansion in countries like India coupled with efficient trading of carbon emission reductions with other countries nullifies. the Copenhagen Summit's failure to evolve a binding climate change treaty fueled uncertainty about the future of carbon trading. concerns over economic growth stagnating in the latter (since emission cuts can be traded effectively). also furthers the case for developed nations adopting legally binding emission cuts.economic incentive to investors keen to invest in wind energy generation. India' and China's causing prices to fall. Then. Recession-hit Share prices. S&P 500 Wilderhill New Energy Global Innovation index 2007 08 46 . In a related context. (Flood and Harvey. 2009) By signaling their respective governments' intent to invest in green technologies and encourage the private sector to so the same. India and China represent higher future volumes in carbon trading thereby increasing the attractiveness of investing in wind energy. November 1st 2007-100 100 80 60 40 20 09 Figure 1 : Carbon trend prices Source: Thomson Reuters By providing for an incentive to transfer wind power technologies to developing nations on the part of developed nations.

Policy change and its effects A national commitment on combating climate change also provides for effective signals to investors keen to invest in India's wind energy industry. According to the GWEC report, “Currently, incentives include a mix of federal and state level initiatives. The former consist of import duty concessions and high rates of allowable depreciation; while the latter consist of certain states offering special tariffs, energy buy-backs and guaranteed markets through specified renewable portfolio standards in some states (10 states in India have launched RPS where quotas for renewable energy share from wind of up to 10% have been set and preferential tariffs introduced). While a national feed-in tariff was launched in June 2008, which is a national generation-based incentive scheme for grid connected. wind power projects, it is in fact too low to have a significant impact on a project's viability (emphasis added by us).” (Pullen et. al., 2009). Thus, we can conclude that India's tremendous wind energy resource has only been partially realized due to the lack of a coherent national renewable energy policy and inconsistent implementation of state government initiatives is hampering genuine progress. In the context of the above, the importance of a national level renewable portfolio standard envisaged by the NAPCC cannot be underestimated. By providing for a wind energy quotas at the national level, and allowing for trading of renewable energy certificates as advocated by the GWEC, such a policy will be an internal inter-state version of the CDM itself. The CDM in conjunction with renewable energy certificate trading within the country would: · · Lend stability to the policy atmosphere, currently dominated by state level policies An efficient inter-linkage between state·

based RPSs and NAPCC led policies will ensure maximization of investment returns. States with high wind power generation capacity are already offering state based incentives with high quotas, and the national RPS envisages an equal minimum quota for each state while dictating that state-level quotas have to fulfilled as well (i.e. Minimum wind energy to be produced = Max(National RPS for wind energy, State level RPS for wind energy). This would ensure maximum efficiency generated from investments by introducing a market-based system wherein states with high potential could substantially overshoot their national quotas and trade the certificates with other states. The RPS allows for only grid connected electricity to benefit, thereby correcting the traditional focus on incentivizing only installation instead of actual power generation. Thus there will follow a closing of the gap between installed capacity and actual generation.

Concluding comments Due to its cost advantages, wind power remains the most promising source of renewable energy in India. Emissions trading through the CDM route as an aftermath of the recent thrust in climate change negotiations and concerns would further incentivize the transfer of technological expertise and investment in this field from developed countries. In the context of a possible increase in carbon prices due to the global economic recovery and China and India taking an active part in emission reductions, such a development promises aggressive growth in the Indian wind energy sector in the coming decade. The impending implementation of a national RPS would provide incentives to renewable energy generation facilities connected to the grid network. This would favor the wind energy industry (due to its large installed capacity base)


over the solar energy industry. It would also address the gap between wind energy production and installed capacity that exists today. As a result, growth in the coming years would not be limited to turbine manufacture, but would also include the different parts of the value-chain. About the Authors Arjun Upmanyu is a 2nd year PGP student at IIM Ahmedabad. He did his Bachelor's in Economics from St. Stephen's College, Delhi and can be reached at Teemish Gupta is a 2nd year PGP student at IIM Ahmedabad. He did his Bachelor's and Master's in Biochemical Engineering and Biotechnology from IIT Delhi and can be reached at Nikhil Ummat is a 2nd year PGP student at IIM Ahmedabad. He did his Bachelor's in Nautical Sciences from T.S. Chanakya and can be reached at References 1. Angelika Pullen, Steve Sawyer, DVGiri, TFJayasurya, Srinivas Krishnaswamy (2009), India Wind Energy Outlook 2009, GWEC. Retrieved January 14, 2010 from: 008_India_LowRes.pdf 2. Indian Wind Turbine Manufacturer's Association, Wind Energy in India. Retrieved January 14, 2010 from: Suzlon, Wind Power Growth Drivers. Retrieved January 14, 2010 from: wpgd_wind_energy.aspx Wikipedia, Kyoto Protocol, Retrieved January 14, 2010 from: 3. Wikipedia, List of countries by carbon dioxide emissions, Retrieved January 14, 2010 from: _by_carbon_dioxide_emissions 4. Anjana Pasricha (December 22, 2009), India satisfied with Copenhagen Summit, Voice of America News. Retrieved January 13, 2010 from: 5. COP15 News 2009, Wind Power Works. Retrieved January 13, 2010 from: p15/news_2009.html#none 6. Why did Copenhagen fail to deliver a climate deal?, December 22, 2009, BBC News. Retrieved January 13, 2010 from: 7. Chris Flood and Fiona Harvey, December 22, 2009, Carbon prices fall in wake of Copenhagen, Financial Times. Retrieved January 14, 2010 from: 8. The Green Slump, December 3, 2009, The Economist. Retrieved January 14, 2010 from: story.cfm?story_id=14994802 9. Ishan Purohit and Pallav Purohit, , July 2009, Wind Energy in India: Status and Future Prospects, Journal of Renewable and Sustainable Energy. Retrieved January 13, 2010 from:


Leveraging the Power of NPS in B2B Markets
Abstract NPS is gaining attention and several companies across various industries have adopted the measurement, evaluation and management of NPS as being critical to their success. The extent of its success seems to be associated with how successfully it is applied to the specific context that each company operates across each of the target markets of its respective product or service offerings. This paper has identified one such subjective element in the context of B2B customer namely the differentiation of the buyer and user attributes and how appropriate evaluations can lead to creating powerful strategic and tactical actions to enhance the power of marketing and sales operations. Business Value of being an In-Supplier At a broad-level revenue in B2B markets can be classified as,
? New-New New revenue opportunity from

that are in relatively better position to sail through the testing times. This will again depend on the status of being a successful In-Supplier. Enhancing In-Supplier status with the power of customer Loyalty (NPS) Translating the merit of being an impressive InSupplier to lead to increased revenue opportunities is achieved by leveraging customer loyalty as a proven source for referral power/potential and an indicator of the repurchase power/potential that is so critical to repeat businesses. Net Promoter Score (NPS) has been identified as a comprehensive measure of customer loyalty and is being increasingly deployed in gauging the power and economics of referral and re-purchase behaviors. Recent trends across several industries indicate that the NPS is an integral part of B2B and B2C marketing strategies. However there seems to be a certain scope for improving the overall implementation of NPS in the context of B2B markets to truly leverage its power. Differentiated Buyer and User identities in B2B customers One of the very critical aspects of a customer that is differentiated between the B2C and B2B markets is the oneness of the “buyer” and “user” behaviors in a given customer in B2C markets as opposed to the physical separation and behavioral differentiation of these two identities in the customer in B2B markets. With the exceptions of certain consumer products/markets targeting children and senior citizens, much of the B2C market's typical customer is the buyer and also the user of the

New business customer
? Existing-New

New revenue opportunity from Existing business customer

Generally it is observed that Existing-New revenue and the ability to sustain its growth based on reliable and reasonable demand estimations depends greatly on the strength of the company to be the best-in-class In-Supplier. Additionally during these testing economic times it is quite common to witness the financial failures of several suppliers who enjoy InSupplier status in a given B2B market/company, and their inability to maintain the desired levels of service required by the customers. This leads to the potential opening up of additional displacement and replacement opportunities for other suppliers



Measurement and Evaluation ? Estimating Customer Loyalty and quantifying referral and repurchase power/economics 2. Certainly not accurate enough to derive NPS and identify actionable data such as referral and repurchase power/potential of the customer. “Will you recommend the product/brand/company?” typically rated on the 11-point scale from 0 to10 and response to this question is used as baseline to identify “Promoters” and “Detractors” the Promoters expected to be more open to extending positive referrals and also involve more predictably and favorably in repurchase decisions. The survey 50 AUDIRE . Post-sales it is this aggregated identity of user entity that the supplier corresponds primarily in terms of products support. Postsales. It is therefore imperative that the differentiated and divergent identities of buyer and user behaviors are factored into the application of NPS to enhance the accuracy and effectiveness of the data as well as actions defined on its basis. they are: 1. Geographical or Functional differentiation. This paper identifies two key areas that require more focus.product. product upgrades. the user behavior is typically exhibited by the personnel from the R&D function (system architects and system engineers in the R&D). the software supplier undertakes a customer satisfaction (loyalty) survey exercise to specifically measure the OEM's customer satisfaction and the customer loyalty. Reengineering NPS Conventional measurement of NPS is based on the response to the single question. In this setting. Typically the above question is deemed to provide an aggregated indication of the overall experience of the customer with the several key attributes of the product/brand. NPS . However this is not as straightforward in the case of B2B market customers as there are instances wherein the buyer and user differentiation is so complex that a single respondent's response (either a buyer or user entity) to the single question cannot truly represent the consolidated view of customer loyalty.Analysis and Actions ? Strategic and Tactical decision leading to specific actions defined as part of overall marketing-mix Illustration To illustrate the above challenges in measurement and application of NPS in a reallife B2B customer setting. Apart from these select organizational attributes it is even more critical to note the distinctiveness between the Buyer and User behavioral attributes within a B2B DMU (Decision Making Unit). However that is most often not the case with a B2B customer as the buyer is usually different from the user due to Organizational (Hierarchical). The DMU typically in OEMs are characterized by the combination of several decision makers across different functions such as Strategic sourcing (purchase). we have used the case of Communications Software Technologies market where the OEMs of Telecommunications equipment are the customers of independent software product suppliers.IIM ABC CONSULTING REVIEW . Product Line Management. The buyer behavior is exhibited by the personnel from the sourcing function. professional services etc. NPS . The key personnel from these functions recommend and influence the buying decision with each one evaluating the product's technological and commercial attributes from its respective buying objectives. Therefore in B2B markets these inherently complex attributes of the customer have to be evaluated more closely while designing the measurement and application of NPS. R&D at the minimum.

If it tries to consolidate these on its own the final view is still not appropriate and may not be consistent with the overall consolidated view if it had come directly from the OEM customer. A divergent view of the customer satisfaction (loyalty) feedback from the buyer and user entities also impacts the various strategic and transactional activities (across demand forecasting. business development. integratedmarketing etc) that the supplier defines based on the overall measure of the referral and repurchase power/potential derived from the NPS. Vital for the supplier to measure and evaluate the customer loyalty (NPS) of the buyer and user entities independently. In summary. 1. So the software supplier is finally left with independent feedbacks from the buyer and the user entities. NPS . Create an internal channel between the buyer and user entities within the customer's buying-center to ensure the independent feedback of the survey from each entity flows to the other and this in turn enables a platform for the customer to directly offer a consolidated view of the overall customer loyalty. This leads to the data collected being only partial as the user entity will have presented feedback from the perspective of how it has engaged with the various attributes of the company and the product. If the supplier specifically extends the survey to include personnel from the buyer entity it will also similarly have a partial coverage effect.Measurement and Evaluation 1. This pre-requires that the supplier has thoroughly studied the independent customer loyalty of the buyer and user entities of the previous buyingcenter and has a better sense of the respective referral potential/power this is even more critical for external businesses outside the customer. with this real-life case of a B2B market we have established the following key challenges with NPS in the context of B2B markets. Extend the integrated-marketing mix with elements of strategic and tactical activities that adequately leverage the referral and repurchase power/economics of buyer and user entities rather than merely adopt adhoc means to only trigger successful conversion of leads. 2. Let us consider the case of a different business (products) unit within the OEM that intends to license the software technologies and internally checks for preferred In-Suppliers. 3.IIM ABC CONSULTING REVIEW 51 . 2. Critical to also obtain a consolidated view of the overall measure of customer loyalty (NPS) of the customer directly from the customer as opposed to deriving this from the independent views of the buyer and user entities. Reengineer the customer satisfaction (loyalty) survey to independently measure and evaluate the NPS of the buyer and user entities within the customer buying-center. AUDIRE .is carried out by sending questionnaires most often responded to by only the user entity within the customer as that is currently the only actively engaging entity within the customer. Recommendations In this section a set of recommendations to enhance the overall impact of NPS in B2B markets have been identified in the context of Communications Software Technologies market in the OEM telecommunications equipment industry. The supplier is at advantage if it receives higher referral mileage from both the buyer and the user entities of the previous buying-center. This is a critical issue in the measurement and evaluation of the NPS in the B2B context that needs to be addressed to improve upon the effectiveness and accuracy of the NPS derived from such a survey.

2. 1. But for new products dealing with futuristic state-of-the-art technologies the buying-power at the buying-center may be more influenced by the user entity (R&D department) as opposed to the buyer entity (sourcing department). It is recommended that the supplier analyses the NPS data of each customer both at the buying-center level (consolidated view) and the buyer and user entity level (independent view) to identify specific subjective elements a non-exhaustive list can be the following: Does the buyer or the user entity exhibit ? greater referral power? Which is more critical to the success of the ? referral process given the dynamism of the buying-power in the buying-center? This can be subjective to the specific nature or the life-cycle stage of the product. Application In the context of the above illustration. For legacy/mature products from the buyingcenter's point of view the buying-power may shift more towards the buyer entity as opposed to the user entity. 3.primarily to differentiate the buyer and user NPS scores. Dealing with Referral Power Typically the NPS data is analyzed to qualify the referral power of the customer as one of 3 possible levels Low-Medium-High and a list of top-5 or 10 customers selected from across varying customer-types is identified. it is recommended that the repurchase potential of the customers is also subjectively analyzed . Better pricing-models etc over parameters characteristic of the user behavior (R&D department) such as. This ensures the feedback received is commensurate and consistent with the real buying dynamics of this buying-center. the software supplier might offer legacy/mature products that are related to older generation technologies and also new products related to the latest in communications technologies. Understand the balance of buying-power between the buyer and user entities and ensure the consolidated feedback does come from the more powerful entity. Credentials of successful deployment in real-life networks and proven Interoperability etc. 1. Evaluating the supplier-stability to offer continued AMC for a legacy technology. NPS . demand generation types of activities to good effect and success. feedback.3. 2. Ease of purchase with a straight-rebuy that is also reliable. press-releases etc that are then used as favorable customer experiences (positive references) to help in the tactical closure/conversion of leads within the customer or from a different customer. It may be more appropriate to evaluate the product with higher weightage to parameters characteristic of the buyer behavior (sourcing department) such as. Dealing with Repurchase Potential NPS is a fairly reasonable and reliable indicator of the repurchase behavior of the customer and can be used by companies to perform demand forecasting. Recognized as best-in-class supplier of latest technologies. This set is then used to solicit referral quotes. It is imperative that the software supplier appropriately uses the referral power of its existing customers from either the buyer entities or user entities independently depending upon the specific nature of the product and the buying-center's characteristics and dynamics. However in the B2B context. on various relevant attributes before identifying specific 52 .Analysis and Actions 1. 2.

application to business operations. The supplier can focus all demand generation activities by specifically targeting the PLM function and tactically use the measured repurchase potential to influence the buying decisions towards early conversion/closure. In such situations it is very vital for the supplier to appropriately map the “influencer” role of PLM organization and measure the NPS independently to measure the repurchase potential. HBR Dec-2003 Need for a product buy situation arises due to specific triggers from any of the different functions and their respective personnel in the DMU. consider the case where the need for a product buy situation in the area of latest AUDIRE . Reichheld.HBR Article. The supplier is recommended to quickly map that need/lead to a repurchase decision of a buy decision/transaction that the buying-center previously completed with that References 1. Application In the context of the illustration described above. He is currently employed in Aricent Technologies as Manager Product Management and Marketing.IIM ABC CONSULTING REVIEW 53 . “The One Number You Need To Grow”. Frederick F. About the Author Vishwanathan (Vishwa) Sahasranamam is a 2nd year PGSEM student in IIM Bangalore. and has over 9 years of experience in the communications industry. Articles in Journals . A non-exhaustive list can be the following: Evaluate the relative balance of buying? power between the buyer and user entities and associate it with the independent repurchase potential Original source for need leading to a ? product buy situation/decision? Type and Nature of ? products or technologies whose buy situations/ decisions are more commonly triggered by key functions in either the buyer or user entities of the buying-center technologies is always triggered by the Product Line Management (PLM) function (playing the role of “influencer” in the DMU). but the actual buying process is operated by the Sourcing and R&D functions. He can be reached at vishwaiimb@gmail.

The proportion of marketing spend allocated to this marketing form is predicted to quarduple in the next 5 years. This is just one among the numerous colourful examples of the ways marketers are harnessing the power of social media marketing.Marketing for Tomorrow: Social Media Marketing del. clips of the CEO's extreme blending exploits will pop-up in Youtube and your brand will get instant fame – all for $50. Coke. turn on the video recorder and ask your CEO to engage in extreme blending wherein he blends marbles. use it to purchase a rotisserie chicken. Recent Developments in Social Media Marketing Facebook CEO Mark Zuckerberg says that the social networking site now has over 200 million users. chicken and Coke to show off the power of his Your Business Reader Your Site Abstract Today's marketers are increasingly harnessing the viral power of social media marketing (marketing through online social forums and social networking sites) through innovative campaigns. a Utahbased blender's successful viral marketing campaign. This is the story of BlendTec. Introduction What do you do when you are faced with the seemingly impossible job of creating visibility for a tiny brand on a shoestring budget and you are promoting something as unexciting as a blender? Here's an idea: Take $50. Facebook opened its network to external developers. This 54 . This article looks at social media marketing through various lenses and examines ways in which it scores over traditional marketing.icio. a bag of marbles. golf balls and a URL. it would be the 5th largest in the world! In May 2007. Upload this video on your URL and within days. golf-balls. If Facebook was a country. Validation of social media marketing from a social psychology perspective has been presented and several innovative campaigns have been discussed. Then.

The idea is as follows: by exploring somebody else's phone (text messages. customers were able to locate items in the pictures and put their name on it. a company's spend on social media marketing averages around 3. Nov 2008 Through the lens of Social Psychology – The Third Person Effect Sears has a unique strategy for generating wordof-mouth publicity through female Facebook users. Flickr and YouTube.5% of its total marketing budget. it asks women to 'help others choose their prom dresses'.IIM ABC CONSULTING REVIEW 55 . several companies are finding innovative ways of integrating social media into their brands. etc) one can tell a lot about the person and his way of life. we explore various facets of social media marketing and find out what sets it apart from other traditional marketing methods. Transcending Beyond Reality Nokia has initiated a very successful Facebook marketing campaign called “Somebody Else's Phone” which is a flash micro-site that allows one to look into the phone of a hero named Luca. Facebook users started embedding links and images in their own profiles and across news Blogs Social Networks Online Video Podcasts RSS Feeds Wikis Others 1.50% 11. Numerous social psychology studies have demonstrated that we consider other people to be more influenced by media than us.7% within five years. LinkedIn. the company was successful in converting idle browsing into a flourishing bottomline. According to a 2009 survey.60% 18. The first person to tag an object got to take it home. IKEA is one such example. This figure is predicted to grow to 6.30% Figure1: Percentage of Markets Using New Media Elements in Direct Marketing Source: Marketing Executives Networking Group (MENG). Other common social media marketing tools include Twitter. These and other such behavioral tendencies of consumers can be exploited by social media marketers by careful planning of their campaign. Nokia's campaign satisfies a very basic human craving – the urge to peek into other people's lives. In this article. Sears has correctly identified the implications of the “Third-person effect”. who they believe to be more gullible to aggressive AUDIRE .1% within an year and to 13. blogs. An account of one of their store managers was created on Facebook and showroom furniture images were uploaded to his Facebook photo album. Nokia's initiative shows how marketers can satisfy otherwise elusive human emotional needs by using internet technology. Using the allpopular “tagging” feature.10% 24. This effect is particularly strong in the context of socialnetworking websites. marketing communication.40% 17. music stored.marked the beginning of numerous social media marketing innovations. Integrating Social Media Marketing into Brands Despite the challenges involved.90% 7. by recommending brands they personally believe in. address book. Hence Facebook users believe that they can help others.50% 25. Instead of naively pursuing each user on its own. “Social Media in Marketing” as cited in press release. The internet can prove to be extremely liberating for it allows us to indulge in our otherwise difficult to satisfy needs from behind a shroud of anonymity. Users can then ask Luca questions through his fanpage to guage if they have understood him correctly.

The promotion spread over 31 days. winners of which would receive the HP laptops (one per blog). Conclusion Social media marketing offers an unique opportunity to marketers to achieve marketing success by making best use of its viral and focussed nature.20% Traditional marketing often uses celebrity influence to further their brands. Social Media Marketing versus Traditional Marketing There are several avenues through which social media marketing scores over other traditional methods: ? Nature: Consumers initially targeted Viral greatest advantages for social media is the voice of the customer. Nowadays. Harley-Davidson zeroed in on social media marketing. If Harley-Davidson posts a question. ? Voice of the Customer: One of the promotion was that of the systems given out and shipping. Such growth helps companies to reach out to like-minded people. The cost of reaching out to thousands of these users was just that of giving away some furniture. thousands and thousands of users willingly promoted IKEA. Most recently.90% 59. 'Are you in favor of darkening the bike out. without any promotional pushes. blackening the bike out or shiny chrome?'. this amounted to just $ 250. HP registered a 84% increase in sales of the model being promoted and 14% overall increase of traffic on their website.feeds. In turn.40% 65% 59. Social Media marketing helps companies to intercept what consumers are saying about its brands outside its walls.10% 51. They launched social media initiatives on Facebook on July 2008 by creating an account for their brand.20% 42. to fish where the fish are. bloggers and site owners also represent an exceptional and dedicated segment of the communications and media landscape and their influence is on the rise.10% 48. Hence.904 fans on Facebook within a period of just 10 months. Customer engagement Direct customer communications Speed of feedback/resuls Learning of customer preferences Low cost Grand building Market research Credibility of the "crowd" Reach 85. it is not unusual to receive 300 to 500 comments. HP used this influence to their advantage by providing 31 HP laptops to bloggers to create their own unique contests specifically catered to their readers. garnered positive discussion about HP on the internet which quickly led to a rise in sales.30% 40.10% 37. ? Harnessing Influencial Personalities: via social media pass along marketing messages to a large number of their friends and the overall growth of marketing campaigns snowballs very quickly. The economics of social media initiatives usually compares very favourably in terms of economics with traditional marketing methods producing similar benefits. ? Economics: The total cost of the HP Figure 2 : Main Benefits of Using Social Media Marketing According to Marketing Executives (% of Respondents) ? Focussed and Targetted Growth: The rise in fan base achieved by Harley-Davidson was purely through organic growth. Social media marketing helps in harnessing their support and promotion through such endorsers is more economical as well. The trick to perform well in this game is to understand the forces that guide 56 . so to speak. such as. marketing campaigns can be designed in a focussed and targetted way. They accrued 145.000.

29. 2007. in future one expects to see more creative talent in social media marketing and campaigns which will extend the boundaries of creativity these forces. Vol. http://www. Tanvi Saraf holds a Bachelor of Technology degree in Chemical Engineering from the Indian Institute of Technology. Fall 2009. Jie. Barnes. Warren. CMO Survey.html AUDIRE . http:// www. 161.marketingpilgrim. “Profiting from Social Networking”. “How Harley-Davidson Drives Mobile Marketing. He can be reached at 070822_791378. Janet. Issue 6 2. http://www.htm 4. Terry. gers-increase-hp-laptop-sales-85. Meiners.human interaction and creating innovative campaigns to harness these forces. “American Journal of Business”. About the Authors Abhirup Ganguly holds a Bachelor of Engineering degree in Chemical Engineering from Jadavpur University. Sales & Marketing Management. http:// References : 1. 25 November /news-and features/direct/e3i7def68b2d246e0d 2e66f3ec8a10ad251 8. 30 September.. Bombay and is currently a 2nd year student of the Post Graduate Programme at the Indian Institute of Management. sponsored by the Fuqua School of Business at Duke University and the American Marketing association 5. Kolkata and is currently a 2nd year student of the Post Graduate Programme at the Indian Institute of /11/25/facebook-marketing-ikeas-geniususe-of-photo-tagging 7. Vol. Maha. Several successful social media marketing campaigns show us that if the campaign is well designed and is innovative enough to create a buzz. August 2009. 8 April 2009. Dan.ernet. Frommer. the cost of marketing is really low in social media marketing. Christina. 2009. Facebook”. “Facebook NowThe Fifth-Largest Country In The World”. “Facebook Marketing: IKEA's Genius Use of Photo Tagging”.brandweek. Hence.IIM ABC CONSULTING REVIEW 57 .ganguly09@iimb. http://mashable.saraf09@iimb. 2008. “How to Win Friends and Influence People: Social Media Marketing in the Modern Communications”.businessinsider. Number 2 6. Bangalore. Daugherty. 22 August. She can be reached at tanvi.ernet. “Bloggers Increase HP Laptop Sales 85%”. 29 April. -now-the-fifth-largest-country-in-the- world-2009-4 3. Courtney M. Bangalore.

but one of the many ways in which internet marketing can be done. Websites and services based on Web 2. was either the first or among the early innovators in affiliate marketing with a cost-per-click program. there are very few strong established metrics of understanding how this business works and how it can be made sustainable. Introduction As the internet proliferates to reach more people in the far corners of the earth. but its program was the first to become widely-known and serve as a model for subsequent programs. 2000) Though Amazon. was not the first merchant to offer an affiliate program. experts and marketers around the world. In recent years. which suggests that Cybererotica. Therefore it is believed that cost-benefit metrics associated with affiliate marketing programs. The interactive nature of Internet marketing. It is an Internet-based marketing practice in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's marketing efforts. New media has allowed merchants to become closer to their affiliates and improve communication between them. CEO and founder of Amazon. The Internet has brought many unique benefits to marketing. Affiliate marketing. the success of a brand. In a line. is a unique quality of the medium. 2008) 58 . Growth in visitors coming from search engines would be a direct result of this improvement in search engine rankings. an adult site. (Collins.0 conceptsblogging and interactive online communitieshave greatly impacted the affiliate marketing world. one of which is lower costs and greater capabilities for the distribution of information and media to a global audience.Quo Vadis. (Hinchcliff. is eliciting an increasing amount of interest these days among researchers. Affiliate Marketing Abstract Affiliate Marketing is a low cost method of exploiting a large network of web-sites to act as a channel to advertise for a particular product or service. as the internet reaches more and more people. There is a large body of evidence to the contrary though. (Janssen & Van heck. 2006) Online affiliate marketing networks besides directly increasing the visibility of advertisers also have indirect network effects on the ranking of advertiser's web sites in search results. stands to be driven to a great extent by online marketing. Affiliate marketing is an ancient phenomenon in the rapidly changing world of e-commerce and e-business. this form of internet marketing faces several issues as it grows in the light of several recent scams. both in terms of providing instant response and eliciting responses. affiliate marketing is using one website to drive traffic to another. such as the average marketing cost will decrease when the positive effects of affiliate marketing on search engine rankings are taken into account. Affiliate marketing is gaining increasing importance as a channel. especially an e-brand. In this paper we follow a modeling approach to determine the most important factors which will help affiliate marketing overcome its pastignominy. The most popular story about the origin of affiliate marketing places the invention of this concept in the hands of Jeff Bezos.

is that the future of this marketing method need not necessarily be an extrapolation of the past. (Internet growth statistics. the model provides a sound foundation to develop an understanding of how affiliate marketing would perform in the changing dynamics of the future. 1998) Affiliate marketing allows the merchant to have a larger number of 'sales people' at an effectively lower cost.png To understand the behavior along with the mechanisms by which various entities in our model influence each other. also known as publishers. Neither do we have an existing model to help an observer develop a sense of what the important entities in the industry are nor are the qualities of these entities in the Affiliate marketing universe explained in any way. We consider three primary entities in the Affiliate marketing universe namely. 2005)This kind of abuse from affiliates has severely affected the usage of affiliate marketing in the past and consumer trust levels have certainly dropped. In a sense. The system allows individuals and other businesses to become freelance marketers for a company and generate income from individuals following links on websites or in e-mails sent to them. The difficulty in predicting the future of Affiliate marketing. (Singel. The chief attraction of affiliate marketing lies in the sheer number of affiliates. Illustration of the concept of affiliate marketing Affiliate marketing is also responsible for much of the spam that clogs inboxes.5% of the world's population. In this Source http://en. creation and destruction of network effects in Affiliate marketing. affiliates can be visualized as a Affiliate_Marketing_Illustration. we develop a causal Model that models the inter-play between the entities involved in the Affiliate Marketing universe.wikipedia. The Entities In The Affiliate Marketing Universe Step 1 Step 2 Step 3 Customer Figure 1. More importantly. Publishers and the Affiliate Marketer. which becomes more dynamic and more intelligent as more 'nodes' are added to it. For example. We do not yet have a theoretical foundation for understanding the existence. in a given affiliate network. the Merchant. The Internet is used by 1663 million people all over the world or about 24. The overall targeted consumer base for internet marketing is expected to keep growing given the increasing importance of Internet marketing and the growing number of internet users. This has consequently led to a decrease in the effectiveness of affiliates as a legitimate marketing channel.000 affiliates with an incentive to try different approaches and monitor performance rather than just 500 marketers or sales people. there would typically be 400.IIM ABC CONSULTING REVIEW 59 . one must first examine the importance and characteristics of these entities. if and how it will rebuild from here on. 2009) The only question for affiliate marketing is whether it can successfully leverage this reach the internet as a marketing medium provides them.Brand/Seller Affiliate paper. It also allows him the opportunity to leverage the sheer size of this network through lear ning by AUDIRE . as would happen in the non-virtual sibling of this model. (Kelly. contaminated search results. and the barrage of pings and fake TrackBacks that have driven many bloggers to shut down comments on their sites. as of June 2009.

This further enables the results of these 'experiments' to percolate down to the merchant quickly so that more effective forms of marketing can be used in future. Affiliate marketing has a more elaborate feedback mechanism as well because there is tracking performed and more data is available to participants. They act as a third party who verifies results between merchant and affiliates and serve as a boundary spanner between to create a closer community between the two. As such there are very few checks for any entity to start off as an Affiliate Marketer and make improper use of gullible affiliates. merchants and affiliates lies in the economies of scale. The issue of trust in the affiliate marketing universe has been an important one. like CPS and CPA. It allows websites offering affiliate programs (typically online merchants) to reach a larger audience by promoting their affiliate programs to all of the publishers participating in the affiliate network. more so given recent events and the consequent need for all parties on the chain to put in place measures to elicit trust. once a merchant pays the affiliate network his initial set-up fee. In perfor mance based pricing/compensation models. the path to Affiliate marketing these days starts with finding the best Affiliate marketer or Network. For the same reason. advertisers and publishers share the risk of a visitor that does not convert. They can be called Affiliate Managers and for the purpose of this paper include Affiliate Management Agencies. A totally decentralized system is not efficient. As the base of leads (modeled here as user base) goes up it 60 . Hence the importance of performance measurement metrics such as Cost Per Sale (CPS) in establishing guidelines of behavior for affiliates. Practically. cost per mille (together <1%).experimentation at minimal cost. Brokers also ease the process of billing and payment and work as Aggregators who provide a single point of contact for both merchants and affiliates. at times it is downright defective because total autonomy can paralyze a system. the traffic generated by an affiliate marketing network is likely to be unfocussed and ineffective as there are no costs. For the merchant who wants to market his product. as has been seen in the past with issues such as click-fraud and other affiliate scams. The four ways in which the compensation system in affiliate marketing works is through Cost per click. Typically. They are the middle men who provide access to networks and often act as neutral monitors to ensure the effectiveness of ads placed. he can add new affiliates almost for free and conversely. no qualifications and hence no entry barriers for an affiliate to enter the network. The affiliate marketers are brokers. new affiliates need not pay anything to join an affiliate program. we can arrive at the relationship between the number of merchants using an affiliate marketing campaign and the number of users or leads obtained from the affiliate marketing campaign. CPS (usage 80%) and Cost Per Action (CPA) (usag e 19%). Super-Affiliates and Specialized Third Parties vendors. The key value for the broker. Performanceoriented compensation measures help align the objectives of the merchant and the affiliate and thus address the agency problem that would otherwise crop up. the complexity of the market now warrants another tier of players apart from the merchant and the affiliate. which means additional affiliates can be added to the network at very little additional cost. Brokers often serve as a neutral party that measures performance and monitors the network. As we shall further see in this paper. A MODELING APPROACH TO AFFILIATE MARKETING Commonsensically. Affiliate marketing needs to be extremely performance-oriented. An affiliate network allows website publishers to more easily find and participate in affiliate programs which are suitable for their website and thus generate income from those programs.

as the number of publishers exceeds the affiliate marketer's capacity for monitoring. If the objectives of the publishers and merchants can be aligned to a high extent with the help of these performance 61 . Consequently we would expect consumer trust in the affiliate marketing channel to increase as the usefulness of these advertisements increase. albeit at a decreasing rate as competition heats up. Correspondingly. More contextual advertisements and searches would mean more useful results for the consumer. the performance index is likely to go down. the better the quality of the ads. merchants would flee the universe. The number of publishers would also consequently be driven up. the higher would be the efficiency index and consequently higher the monetary value of this business for affiliate marketers. As we have previously mentioned. To model the necessity for ads to be contextual we introduce a variable called Performance. Now as this index increases. which is essentially an index conveying the relevance and contexuality of the affiliate marketing network. The more ads are placed in context. control on the network in essential to the relevance and success of affiliate marketing. Stronger the network. publisher and user base An important player in this whole model is the way performance based payment systems for affiliates are designed. Hence we theorize than this would bring down the performance index and consequently consumer trust as well. An increasing Consumer base of course drives more affiliates to tie in with an Performance Merchant + affiliate network. the higher this index. with an increase in reach more merchant would come into the universe. However. Affiliate Marketer + + Performance + Consumer trust Publisher + Publisher + User base Figure 3: Relationship between affiliate marketer performance. This would trigger the causality of the relationship between increasing publisher numbers and merchants to turn negative. However. better the performance monitoring. As discussed before we expect the over targeted number of consumers or internet users to keep increasing given the increasing importance of Internet marketing and the growing number of internet users. we assume that as the number of merchants in the affiliate marketing universe increase. As the number of publishers burgeons beyond the capabilities of Affiliate marketers. Now in the causal loop below. as the number of publishers increases so would experimentation be likely to increase in the channel. consumer trust and publishers Figure 2: Relationship between Merchant.would incite more merchants to sign up and of course more merchant signing up would keep increasing the user base. Now because of the decreasing quality of ads and their lower effectiveness and of course the consequent word of mouth. we would believe that the performance index referred to previously would also consequently increase. We model the brokers or Affiliate marketers as the efficiency index of the set of affiliate marketers. performance in terms of contextuality of ads is likely to suffer and misuse of the channel might become more probable.

the system benefits. Affiliates can also serve as an important source of information for merchants on how to design their advertisements to better appeal to consumers. Janssen. K. Erasmus Research Institute of Management ERIM. (2005). About the Author Chandrima Das is an alumnus of IIM (2008). Kelly. In an ideal performance monitoring system for affiliates. Web 2. SOA Webservices Journal . Affiliate marketers will have to take a stronger stance in their role as a neutral third party and may have to get their hands dirty in monitoring misuse. the affiliate marketers would also need to pay attention to partnering merchants with the correct set of affiliates to ensure contextuality of ads. rather than bombarding them with distracting banners and information which ultimately falls on deaf ears. D. 3. There is also a need to set down guidelines for entities to become Affiliate Marketers in the first Forthcoming. Our model shows that rebuilding affiliate marketing in the future would closely involve rebuilding consumer trust as well. Janssen. Shady Web of Affiliate Marketing. they would act as an extension of the merchant entity and there would be no agency conflict. R. As such these methods of performance monitoring need to be supplemented by educating affiliates about how best to generate leads and sales for the merchant and prove to be useful channels of information to the everyday internet user. How Will Online Affiliate Marketing Networks Impact Search Engine Rankings? . 2007). (2009).How Will Online Affiliate Marketing Networks Impact Search Engine Rankings?(March 7.based systems. (2006).. 2009. Singel. Social science research Network .com. D. Conclusion In conclusion we can say that the two most important levers which need to be kept cognizance of in the Affiliate marketing universe would be performance monitoring of affiliates and consumer trust. Internet growth statistics. (1998). Collins.. the brighter the future of affiliate marketing. Retrieved from www. Given the strong role of trust and dependency in and affiliate marketing network. The closer affiliates can be made to mirror a fully commissioned sales-force. David and Van Heck. She currently works in Oliver Wyman as a Consultant and can be r eached at chandrimad2010@email. Retrieved August 19. E. & Van heck. 2. Retrieved f r o m I n t e r n e t Wo r l d s t a t s : http://www. History of Affiliate Marketing.wired. from clickz. S. New rules for the New Economy. A v a i l a b l e a t S S R N : http://ssrn. 62 .in References 1. (2000.h tm 4. November 10). In order for this to happen. Batch of 2010. E. Hinchcliff. The threshold up to which an increase in publishers will act as a boost to the entire system rather than being seen as 'unmanageable' would increase as the effectiveness of performance based payment systems increases.0's real secret sauce: Network Effects.iimcal.

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