Videocon has just signed a five-year agreement with the century-old global brand Philips to make and sell its televisions in India. But can Videocon, which bases itself on a low-cost model with large manufacturing facilities, be able to avoid a strategic collision with Philips, better known for its high priced range of goods? Is there learning from Videocon’s past experiences with Akai and Toshiba?
It was the 1980s when Indians had started waking up to an exciting news of colour televisions being sold in mass volumes in the rest of the world. But then, Indian companies of course had neither the competence nor the financial muscle to develop such a technically advanced (at that time) proposition. Somewhere during that decade (1985 to be precise), an upstart, young, first generation entrepreneur in India got a brainwave to enter into a technical tie-up with a foreign corporation to launch colour televisions in India. V. N. Dhoot pulled off the biggest coup at that time and tied up with Toshiba to launch India’s first colour televisions.
That one classic move allowed Videocon, along with BPL (which later entered the colour TV market), to dominate the Indian television market in the 80s. But in 1991, the opening up of the economy opened the doors for MNCs such as Samsung, Sony, et al, which flooded the market with superior products & unique strategies (for instance, financing schemes). While BPL faded into oblivion, Videocon survived the onslaught, but just, and lost market shares in a drove. But a spate of intelligent diversification and shrewdly tactical advertising got Videocon back into the market share battle as an extremely significant player. Even the recent past seems to be comfortably ensconced – the company’s stock has outperformed the market in the last one quarter, rising 2.18% as against 0.42% decline in the Sensex. Videocon’s net profit too rose 117.9% to Rs.1.31 billion in Q3 ‘09 against Rs.604.3 million in Q3 ‘08.
And out of the blue, now comes news from Videocon of a spanking five-year licensing deal with the Amsterdam-based Royal Philips Electronics, which would allow Videocon to manufacture and sell TV sets under the Philips brand in India (for which Videocon will pay a royalty of 3% to the Dutch electronics firm).
While on the face of it, the deal is a splendid display of the negotiating power Videocon has gained over the years, bubbling under are also issues that could hit Videocon in its most strategic imperatives – most important being the fact that while Videocon has believed in leveraging its low-cost large manufacturing set up, the Philips brand has traditionally shied away from the price leadership model. Is this a cultural cum strategic collision case in the making? Won’t the deal go at loggerheads with the Videocon brand selling strategy?
It was the 1980s when Indians had started waking up to an exciting news of colour televisions being sold in mass volumes in the rest of the world. But then, Indian companies of course had neither the competence nor the financial muscle to develop such a technically advanced (at that time) proposition. Somewhere during that decade (1985 to be precise), an upstart, young, first generation entrepreneur in India got a brainwave to enter into a technical tie-up with a foreign corporation to launch colour televisions in India. V. N. Dhoot pulled off the biggest coup at that time and tied up with Toshiba to launch India’s first colour televisions.
That one classic move allowed Videocon, along with BPL (which later entered the colour TV market), to dominate the Indian television market in the 80s. But in 1991, the opening up of the economy opened the doors for MNCs such as Samsung, Sony, et al, which flooded the market with superior products & unique strategies (for instance, financing schemes). While BPL faded into oblivion, Videocon survived the onslaught, but just, and lost market shares in a drove. But a spate of intelligent diversification and shrewdly tactical advertising got Videocon back into the market share battle as an extremely significant player. Even the recent past seems to be comfortably ensconced – the company’s stock has outperformed the market in the last one quarter, rising 2.18% as against 0.42% decline in the Sensex. Videocon’s net profit too rose 117.9% to Rs.1.31 billion in Q3 ‘09 against Rs.604.3 million in Q3 ‘08.
And out of the blue, now comes news from Videocon of a spanking five-year licensing deal with the Amsterdam-based Royal Philips Electronics, which would allow Videocon to manufacture and sell TV sets under the Philips brand in India (for which Videocon will pay a royalty of 3% to the Dutch electronics firm).
While on the face of it, the deal is a splendid display of the negotiating power Videocon has gained over the years, bubbling under are also issues that could hit Videocon in its most strategic imperatives – most important being the fact that while Videocon has believed in leveraging its low-cost large manufacturing set up, the Philips brand has traditionally shied away from the price leadership model. Is this a cultural cum strategic collision case in the making? Won’t the deal go at loggerheads with the Videocon brand selling strategy?
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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