BCG

These were typical ice breaking questions. She didn’t dwell into too many details of any of my responses. We immediately started discussing my ELP on increasing internet penetration in India.

I: As I am aware the value chain of providing the broadband service includes a. IXP b. Backbone rings and bandwidth c. Backbone routers/equipments d. Last mile connections Is this understanding correct? Seema: Yes I: And is our client present in all the bits of these value chain? Seema: Currently they are present in all the parts of the value chain. I: However you mentioned that they are serving corporate clients alone, so I assume their backbone might not be spread a lot? Can you give me some more details on what is their current spread at two levels? a. In what cities are they currently present? b. In each of the cities how is their backbone scaled up? Seema: They are present in 12 cities. (tier-1 cities). They have several backbone rings present in each of these cities to serve the corporate clients. (She scribbles and explains a bit more about the clients backbone) I: Ok. Are we looking for any time frame in mind or any financial constraints? Also, is client a conglomerate – I am trying to figure out the capabilities of the client. Also does the client have any minimum required rate of return from the project? Seema: No for all the questions. Lets not get into details of the numbers of required rate etc. Let us just discuss on what are things you are going to consider in helping the client. I: Because we are talking about broadband connections, we must focus on the number of internet connection market in India. There are 150 internet users in India. However there are only 50million PCs in India. Now because each PC will have only one connection 50 million is true market size. 30-70 rural-urban (tier-1) spit and 60-40 corporate-retail split leaves about 14mn as a potential retail market. The will like to consider the following: Customer Reach Company - PC Users -> Laying backbone -> Financing, structuring,etc Awareness -> Last mile -> Operations -- Content Language -> Pockets with in city -> capabilities -- Availability of content -- Ease of use Willingness --Price --Use/Need --Perception External factors included: Regulations: Getting licenses Competition: Internet penetration in the 14mn is presently low. I used some pointers from my ELP findings like Chinese perceive that using computer is very easy vs Indian perception that only skilled ones can use the computers. Some major points of discussion were: a innovative revenue model which we recommended as part of our ELP, and option of bundling services, expanding market by creating a resale market of 2nd hand PCs. After a discussion on the customer part, we talked about how to reach customers. There are two broad ways of doing the network bit. Organic and inorganic. Issues like network sharing, BVNO, cable TV like models for last mile connections were discussed but it was arrived at that scope of doing these was either limited or not possible. Organic was the only possibility of doing this. The retail market is sparse, requires lot of investment, especially in last mile connections. Also some profitable pockets are already occupied by the competition like BSNL, Bharti etc. Given the sparse market, high setup costs and unpredictable returns it doesn’t make sense in entering the market.

Connect your thoughts with the interviewer.

I:Why profitability per ton? Why would CEO bother about profitability per ton. Shouldn’t he be focusing on total profits or share price? R: We are talking about making changes in a year and therefore only profitability per ton can be changed. We cannot do much with quantity itself. I: Right. Could you please tell me where does client manufacture and where does it sell? R: It is a pan India producer with 14-15 plants and sells through out India. I: So how are the customers classified. I would divide them into Retail and Industrial customers. Is that how company does it? R: Yes. Let us focus only on retail clients. Bulk of the business happens through them. I: ok. How do we reach our customers? R: There are distributors who sell it to the customers. I: In terms of geography, are the profits homogenous? R: No. South there is excess supply and up north there is excess deman. I: Ok. Competition? R: 3-4 regional players around every plant and 3-4 other large national players I: How are we doing visavis industry in terms of profits? Any targets in mind? R: We are on par with the industry. Lets aim for 5-10% increase in 1 year. I: Profitability per ton = Unit price – Variable cost – unitized Fixed cost Increasing profitability will mean increasing prices or reducing costs. At this time he led the conversation into increasing price part, although I had written appropriate drivers for cost like DM, DL, Transportation, IM, IL, etc) I: To increase the price: I guess cement is a undifferentiated product and therefore commodity. R: Right. So how can you increase prices? Prices are different in each region. I: Can we look at differentiating the cement (on product dimension) or on relationship dimension and therefore command high prices? R: No. Cannot do that, its commodity. I: I draw 1 plant, some distributors around it and large circles around each distributor. These circles are their markets and each market has different prices) Price is decided by D-S curves. We need to maximize the profit/ton for each region or the following: Max(ΣPi-VCi) (i for all markets) R: Ok so what are the constraints? I: Plant capacity (cannot change this in 1 year), competition, market demand (cannot change that) R: Ok. I: @ Each plant to maximize the profit/ton, I will just sell it to the market with the highest profit. But this will reduce total profits ☺R: Smiles....right! I: So instead of maximizing profit/ton, we must look at cutting out non-profitable markets. That is instead of absolute maximum, just eliminate markets where profits are below acceptable levels. R: Ok. But do we not want to look at what can be done here in low profit markets? I: Right. Take some time Ultimately prices must increase. We cannot change demand. But we can play with our mix in the supply (which is also constant for the next 1 year). I: Draw a 2x2 matrix: Us (strong, weak) vs Competition(Strong, weak) Where we are strong and the competition is weak, we can drive them out easily and play with prices Where we are weak and competition is strong, we either exit or consolidate with other players to drive 3rd player out. Where both are weak, we need to send credible signal to competition to drive them away or collude with them,Then I blabber some stuff on what kind of credible signals can be given to the competition When both are strong, it is pretty straight forward anyways. Then I make a few recommendations on preventing volume/price fluctuation by long term contracts, on vertical integration etc.

Know the interviewer well and connect with the interviewer well. Ask him about what he did in the case, how he did, etc.

I am not describing this case in detail because we simply did some value chain analysis. Nothing right/wrong happened during the interview, barring her 6-8 calls and emails After the interview I was thinking that BCG is a history for me, given the level of disinterest she showed throughout the interview.

This was a very opened case. Also I don’t think I really had any idea of what he wanted me to discuss/solve. I tried to scope down the problem.> I: So tata has come up with this 1L car, and as the CEO of ReVA (I was thinking about the battery operated car, popular in Del/Bangalore) what should I do??? (I was like ok....a game theory case!)A: Nope, we are talking about Renault – the European car manufacture. I: Ok. Could you give me a little head’s up on Renault and its operations ? A: It is a Global player, has presence in all the parts of the value chain, makes cars in various segments. (I have just summarized his description) I: Have we started working towards a similar 1L Car? A: Reva has announced working on a $250 car. It has done little R&D and will take 5 years to launch. I: Alright. Tata has created a new market for cars. The CEO of Renault must be thinking about this in two ways – opportunity and threat. And what CEO must act taking in mind short term and long term. Do we consider all the four possibilities? A: Right way of looking at it. Lets look at all the four options. My structure: (I took like a minute for this as I wasn’t sure if that’s what he wanted) Customer Distribution Company Segments -> Distribution capabilities -> Financing, structuring,etc Needs -> Last mile -> R&D Perception -> Suppliers Preferences Capabilities Price Product External factors included: Regulations: Getting licenses, Pollution aspects Competition: A: Jitesh, why don’t you discuss as you come up with your structure. I: A: That’s alright. But this is gonna happen one the R&D of the car is over. Let us say this is long term. Now what can Renault do? I: Ok we can look at ways of speeding up R&D or pairing with others in the market to co-R&D? A: R&D will take 5 years...cannt play with that. I: Tata has created a new market. Let us treat this thing an opportunity first. Now because we can come into the market only after 5 years, we must look at ways of slowing down the growth of the market so that we can tap into this opportunity at the right time. (I drew 2 S curves with different kurtosis.) We can slow the growth by providing them alternate modes of conveyance @ same or less price! A: That’s good. Alright lets see how can we do that! I: .o0(Finally the first step in right direction ☺ ) Ppl generally use the cars to commute. 1L car users are likely to use it for local commuting. If we can provide substitutes to them, it will be good to slow down the market. The modes of public transportation are Buses, Cars, Trains, 2W (in the same price range) A: Good. So? A: Reva is also into 4W (high end buses). I: Right so, if Reva can help local tier 1/2 municipalities/govt. by establishing the public bus transport system, it will do the trick. I am not sure if we can play any role in Rail transports. We can rope in other players too (who are looking to play role in this market, but have capabilities in this area – Rail and 2W). A: What else can be done here? : 2nd hand market? A: Right! I: Some thing along the lines of true value of maruti. We must ease creation of resale markets for cars. A: Why do you think if may work? I: This business is largely unorganized. Price and credibility will come with Renault brand. But Renault is a small player in the Indian market. (Presence wise) so it must rope in other global players along with it. Also, it must look at getting 2nd hand cars from international markets, if the cost works out, coz I am aware that most of the used cars are dumped in the likes of USA. A: The import duties are likely to be very high. I: But as a lobby of the MNCs, both in India and outside, we can influence Govt Decisions. A: Thik hai. What else? I: We have looked at how do we impact their timing. However these kind of steps might be irreversible and therefore CEO must carefully weigh options. The market may permanently shrink by providing them a substitute where in getting out is not possible. (Like public transport service) One needs to be at the right time at right place with right product. We need to look at how can we block their distribution. They already have a right product (given that their production is underway) A: Right. I: I assume that in India they have their own outlets (single brand). Yes. So I am not sure if much can be done on the distribution front. However in the global markets, we need to erect barriers for Tata’s entry. This can be done at two levels. a. Get higher tarrifs/taxes by lobbying in the government. b. We are already large players globally. We need to prevent Tata from entering the market by blocking the distribution networks (They don’t have their own shops, and we can get others to block their alliances) A: Ok. Good so far, what else? I: We checked the time, distribution?...We need to see if we can control their volumes! (Right product to right customers @ right place in right quantity) A: Good...how will you do it? I: They are sourcing their raw materials from some global vendor. Renault is a large player and will have larger partners eyeing similar opportunity. We can get together and erect barriers for souring of components/raw materials to Tata. A: Ok. This was the opportunity part, how do we analyze this as threat? I : So Tata has created a new market. The threat are as follows: a. Tata dominates new market 5 years down the line b. Customer from our segment moves into tata’s segment A: What else? I: c. Tata can protect the technology with patents, which hampers our R&D d. Uses its technology to launch high end low cost products in our segments and erode our profits!! (d. was the biggest threat and the answer that he was looking for) .