‘Jio’, Ya Jeene Do?

It takes one man just a few minutes to go up to the podium and make his competitors lose an amount as massive as Rs. 12,500 crore! Now how often does that happen?

Fortunately or unfortunately, we did get to experience this some time back when Reliance decided to give a 4 month introductory offer of free voice and data use on the commercial launch of its absolutely disruptive 4G service- Jio. The company announced that it would offer unlimited free local and roaming voice services; access to Jio entertainment apps; free SMS; and data services.

In an attempt to understand what could possibly be in store for us in the near future, let’s have a look at what this breakthrough development could potentially mean for Reliance, for its competition, for the industry and for the society as a whole.

Talking about the impact on Reliance Industries; it had to be huge, undoubtedly. It ended up acquiring a subscriber base of 16 million in the very first month of its launch and the number has been increasing ever since. A recent survey by Bank of America Merill Lynch indicated that the offer caught the attention of Indian customers nation-wide and they are eager to get access to high-speed and unlimited data for free. Well, why would any rational customer not be! More than half of those surveyed said that they were willing to use Reliance Jio as their secondary connection while a quarter said they could even use Jio as their primary SIM provided the quality is good.

However, Reliance needs to be cautious about its network stability and flawless service delivery on a sustainable basis; as these will be the defining factors in retention of the enhanced subscriber base. They will soon be tested on how firm they can stand by their name. Also, the real test will be once Jio starts charging for its services from later this year. Even though it is backed by deep pockets, Jio will need to keep its average revenue per user and subscriber base high in order to ensure recovery of its capital expenditure. The company has an expectation of breaking even and turning profitable in 12 months of operation, based on an expectation to achieve an ARPU of approx. Rs. 300 per month from a subscriber base of 100 million. However, these expectations seem to be a little too optimistic, considering the time frame the management has in mind, and RIL may have a hard time trying to live up to these expectations.

Mr. Ambani can just not afford to underestimate the need for ensuring an unparalleled customer experience, as can be evidenced from some of the challenges that have already started surfacing for the company. These include a large number of network connectivity issues, unacceptable levels of call drop complaints, SIM cards being sold in black due to lack of availability and discontentment regarding smartphone incompatibility. The company also needs to come up with a strong fallback option as it is not backed by a 2G or 3G network and thus compatibility with non VoLTE and non-4G phones might become a huge cause of concern. Although the company has already started addressing some of these issues- like collaborating with ShopClues to increase the availability of 4G-enabled Jio eligible smartphones- it still has a long way to go in ensuring successful execution.

Now, let’s flip the coin to understand another interesting aspect of the story- the impact on competitive firms and the industry as a whole. Undoubtedly, this could be the game changer in the telecom industry. Reliance has shown what the power of competition can possibly be. Competitors have had to slash their rates too, as a response, and data revenues have already begun declining- it’s like a war that has just begun; which will only accelerate over time. However, this kind of an aggressive price war will impact the industry profitability/returns as a whole. With the industry already facing financial stress, high debt burden and slowdown in revenue growth, further decline in data tariffs will create pricing pressures and impact operators’ profitability and sustainability. In addition, the contraction of ARPU and declining profitability will have a spill over effect for the players in the industry in terms of reduction in the appetite to fund further expansion/growth projects after having spent such huge amounts on meeting price wars.

The 3 major rivals did try their best to deny adequate number of interconnection points for Reliance, thus leading to an increase in the number of call drops and a consequent decline in the quality of service that Jio can offer to its subscribers. Their stance that they “are in no way obliged or in any position to entertain Jio’s requests for the latter’s humongous volumes of potentially asymmetric voice traffic” is a clear indication of their deliberate attempt to hinder the success of Jio. Another side of the story was revealed through a statement from the leadership of one of the competitive players that said that Jio is creating a controversy over PoIs to mask inadequacies in its own service- now to believe or not to believe, is for you to decide! The efforts to add hurdles to Jio’s path to glory, do not end at PoIs. There have been accusations of rejection of demand for mobile number portability of subscribers who wish to switch to Jio, on unsubstantiated reasons- another clear indication of the level of threat they feel Jio to be. Does this mean that with Jio’s entry, healthy competition is lost and a ‘cartel’ is formed? Well possibly. It would indeed be interesting to watch who will eventually come out victorious from this war of 3 vs 1!

Reliance needs to be absolutely clear about its long term strategy now. Firstly, in addition to data revenue, they could probably start looking out for other potential sources of revenue like advertising; offering OTT content (like Games/ Music/ Live TV etc); and so on. Also, they need to keep a continuous check on their subscriber base. When customers try to Port from competitor networks to Jio, customized offers are given to retain the high value subscribers among them. This could possibly mean that Reliance ends up acquiring only low value customers, who might not add a lot of value in the long term; another potential cause of concern for Reliance.

However, just like every cloud has a silver lining, I am sure this one has it too. The need for survival will force the players to innovate and develop new business models for the Indian data market; to come up with new services and new ways of making this business profitable. It will get the industry thinking, for sure!

Finally, for a price sensitive market like India, the launch of such an affordable data and voice service would drive greater data adoption across the country. The excitement built around the access to high speed and affordable data services will not only ensure expansion of data reach, but will revolutionize the way we live and work. Aadhar based-paper-less Jio SIM activation process has already enabled a reach of 3100 cities and towns across the country and this graph will only slope upwards with time. The very fact that it was launched on the occasion of teachers’ day can be indicative of the contribution this development can have towards promoting education and digital literacy in the country. Availability of faster and cheaper data services can prove to be a major boost to economic activity in the country, across all sectors, scales and geographies. From start ups and SMEs to multinationals; from farms to mines; from schools to research centers- you name it and the organisation can be listed as a potential beneficiary of this revolution!

Well, no matter what, we will have to accept that Jio has been a one of its kind revolution for the telecom industry and it will definitely be very interesting to see its path unfold in the months to come. Will the 3 rivals be successful in defeating it? Or will it be able to use the power of Shah Rukh Khan’s brand endorsement to emerge as the industry leader? Will it be able to retain its customers once the company starts charging for its services? Or will the price war drive the entire industry’s profitability down the drain? It would indeed be interesting to wait and watch.

Sending India to work: Challenges and the Road Ahead

India has the world’s highest population in the young, employable bracket and sending it to work is the biggest challenge our government faces right now. Failure to do so would result in the biggest opportunity for India’s growth story turning into its biggest liability. Presently only 2.3% of the Indian workforce has undergone formal skill training, as compared to 68% in UK and 52% in the US. Most of India’s workforce is trained on-the-job and there is limited infrastructure, scope or resources for advanced skilling. The industry complains that labor trained at ITIs is not job-ready and courses in skilling centers need to be organized in better co-ordination with the industry.

The National Skill Development Corporation (NSDC) was started on 6 June 2013 as an autonomous body to coordinate and harmonize the skill development efforts of the government and the private sector.

Following are some key facts about NSDC and skilling industry in India:

  • The NSDC plans to provide vocational training to 400 million young people by 2022 with a Rs2500 crore budgetary outlay
  • It works on a public-private partnership model and supports private organizations willing to open skilling centers with grants, loans, course material, fee subsidies, industrial access and the recently started placement services
  • At present there are 3000 training centers, 265 training partners spread across 517 districts of 28 states so far
  • NSDC also monitors the quality and implementation of the skilling programs
  • The training material is designed in association with the local industries and review meeting held regularly ensure the curriculum is up-to-date
  • Industries are increasingly relying on training partners for their human resource needs and subsidize the education of students
  • NSDC has trained more than 36lakh individuals, 62% of them were placed at the centers
  • The sectors NSDC is catering to are construction, healthcare, BFSI, communication, education, retail, transportation and logistics, textiles, food processing, engineering and metal products, electrical products, chemicals, plastics, hospitality, minerals, pharma, beverages and ITeS.

The Business Models

Major private sector partners of NSDC include Centum, WSI, Sahaj, 24X7Tech Support and GCS Group among others. There are four categories of business models in the vocational training sector.

Consumer Based model is for high aspiration sectors like Healthcare, Hospitality, Tourism and Grooming. Students with financial resources opt for these courses which cost higher than other categories.

Industry Based model is for sectors with high demand and high aspiration like ITeS, Retail, Construction & Food Processing. Such courses are subsidized by prospective employers. Industries also pay for up skilling needs of their workforce.

Government Based model is for sectors with low aspiration and high demand like Mining, Power and Textiles. Courses are usually subsidized by the government and students with modest financial resources opt for these courses.

STAR Scheme: is a special government subsidy for opening centers in the most backwards districts of the country. Training partners are subsidized per student enrolled in courses. NSDC is however mulling to discontinue this scheme due to difficulty in judging the accuracy of reported enrolment numbers and reports of misappropriation of funds.

Efficient and large scale training partners usually follow a hub-and-spoke method for organizing their infrastructure and maximizing reach. A hub, located in a local town serves as the biggest training center and is usually equipped with infrastructure and machinery necessary for training. The spokes are usually classroom based smaller training centers in rural locations. Establishment of a spoke is preceded by extensive publicity and outreach campaigns in local areas and trainings are started once requisite number of registrations are recorded.

Once the supply of an area is exhausted, usually in 6 months to one year, the subsidiary center or spoke moves to a new rural location and the cycle of publicity-registration-training-placement is followed again. The subsidiary training centers share infrastructure with local hubs and students are sent to hubs for practical training and up skilling.

Key Problems

This model, though efficient, is not sustainable for smaller players entering the market as they have to arrange for funding partners, publicity expense, trainers and the entire infrastructure every few months as centers move from one location to another, further draining their limited resources obtained from wafer thin margins.

Training partners described publicity as the most challenging aspect of their business. The social perception of skilling courses as low-paying jobs, lack of trust in private players and managing aspirations of the young population are challenges that need to be dealt with at the grassroots. For example, construction and infrastructure industry is set to generate the maximum number of jobs in the upcoming years in the country. However an NSDC survey placed construction at the bottom of the aspiration/desirability index. Most of the young jobseekers prefer more comfortable IT jobs, a sector which does not recruit from NSDC centers in large numbers.

It is also difficult to decide on an ideal location for the training center. Most of the new jobs would be created in a handful of industrialized states including Maharashtra, Gujarat, Tamil Nadu, Karnataka and Punjab. These states are facing a peculiar labor shortfall and unemployment at the same time due to unwillingness of local youth to join the industrial sector. To further complicate the situation, very little and insufficient industrial activity is predicted in the biggest population growth centers of the country viz Uttar Pradesh, Bihar, West Bengal and Rajasthan.

Hence, more often than not, the source of labor is far from the final location of employment creating logistical and coordination issues with managing labor migration and the location of skilling centers. A research survey reported in Scroll conducted by an NGO Pratham, that works in the skilling space, concluded that as many as 77% of the “placed” students returned back to their home villages within one year of employment. 80% of the trained and placed individuals cited reasons such as homesickness, inadequate food and accommodation or language problems as the reason for their return. Only 2% of the respondents indicated low-salaries as the reason.

Some Solutions

So, as it plans to skill million of Indians, the government and its partners also need to focus on mitigating the toils of migration. Interventions by Pratham towards helping workers find proper accommodation, building social bonds, creating spaces for interactions and information exchange recorded that the ‘within 3 months’ dropout rate decreased from 52% to 15%. This could be an often ignored key change in the current skilling and retention efforts.

NSDC employed multiple organizations including Deloitte and KPMG for ‘Skill Gap’ studies to estimate the demand and supply of labor across various sectors and districts in 2013. The same can be used for deciding the location of future training centers and the skills to be taught there.

Standardization of vendors, cost, fee and development of new vendors catering to the sector and sharing of information between partners would lead to bringing down of operational costs for all players operating in the sector.

However, the most important intervention would be if NSDC either takes over or helps the publicity and placement efforts of the training partners. A centrally publicized “Dial-for a-Job” campaign for prospective trainees and “Dial-for-an-employee” missed-call campaigns supported by full-fledged call centers would be monetarily efficient and more effective than individual low-scale efforts at the local level. However, the training capacity would have to be rapidly scaled up match the supply of students and demand of employees resulting from large scale marketing efforts.

Sharing of infrastructure between different players would benefit the smaller players entering the segment. Infrastructure at “hubs” could be shared with newer players for an optimum fee bringing down the cost of new entry. However, if existing players would be open to such an idea remains to be seen.

NSDC’s plans are as ambitious as they are important. The head of one of NSDC’s top five partners, in an interview with Business Standard, described the targeted skilling volumes a “huge risk”. He explained, “All you are doing is creating bad debt. You’re spreading money out to hundreds of new companies who will never be able to pay you back.” The mission, however, if successful could be the single biggest contributor to push India’s growth trajectory in the right direction.

- Ankit Gulliya, Senior Member

E-commerce Trends

E-Commerce today, having covered almost everything under its blanket ranging right from electronic gadgets to books to lingerie to jewellery, is perhaps one of the most buzz words used especially among the entrepreneurial brotherhood and the modern retail customers. Yet, these portals can be very broadly categorized into two domains – General (Aiming to aggregate the maximum) and Niche (Catering to a sub-section of the mainstream). While introduction is not required for the big players in the general categories some of the more innovative niche start-ups in the Indian context include Laptopwale (Laptop aid and sales), Jolivi (Kitchen-ware), Online Prasad (Prasad from all popular temples), Menzkart (Male Specific Merchandising), iLogo (Customized Designing of T Shirts) among others.

Having so many ventures for “everything” raises one very common doubt – would they be making enough money to support and sustain their business? A quick look at the related number might tell a story – While the global e-commerce market value is estimated to go beyond $1.25 trillion by 2013[i], Indian present market is still at $10 billion[ii]. The Indian e-commerce market is growing at 47% YoY while the Global best is China at around 130% growthi.

There are several reasons why there has been such a stupendous growth in the e-commerce sector and perhaps which will continue to keep it soaring:

  1. Customers can easily select products from different providers without moving around physically
  2. Round the clock service
  3. More reach to customers, there is no theoretical geographic limitations
  4. No need of physical company set-ups

The major challenges, nevertheless, include:

  1. Highly competitive market
  2. Payment Gateways
  3. Trust in the online shopping mode
  4. Delivery lag/Service Issues

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A look at Google’s Business Model

What is a Business Model?
A much debated and extensively researched upon term in the field of management, a business model is defined in various ways. In a very precise manner Mark W. Johnson, Clayton M. Christensen and Henning Kagermann have defined the following elements of a successful business model in their article “Reinventing Your Business Model” published in Harvard Business Review,

  • Customer Value Proposition
  • Profit Formula
  • Key Resources
  • Key Processes

The article analyses the above mentioned elements for Google across two different timelines and presents the interrelationships between the above mentioned elements which have contributed and still do to the great success of Google Inc.

Customer Value Proposition for Google
Google AdWords
Customer Value Proposition (2007-08)
Target Customer: The prime customers for Google AdWords were advertisers who were wishing to have targeted ad campaign for their products and services. The target market consisted of small, medium or large firms across geographies.
Job to be done: The major problem with advertisers across the globe was to reach customers with highly targeted and relevant ad offering. Google AdWords solved this problem by giving ads based on keyword and other ad targeting mechanisms.
Offering: The solution to the problem above was simple – a product that can be used by all with little hassle. Google AdWords helped advertisers in not only giving out ads but also managing their campaigns in an easy-to-do way. The payment options were simple based on CPC or CPM and they were able to reach large audiences with highly contextual ads unlike traditional media. It helped them in leveraging the growing use of internet in a highly beneficial way.
In addition to that AdWords provided different targeting mechanisms based on different needs like keyword targeting, topic based targeting, demographics or geographic based targeting.   

Customer Value Proposition (2013-14)
Target Customer: The target customer for AdWords was again businesses but more focus was given to the budding small companies and startups across developing and developed economies.
Job to be done: The prime problem in this time period is not to reach the people but reaching them in an intelligent way. People now are well aware of online advertisements and the real action per ad displayed reduces if the ad is not relevant. Coupled with this is the huge growth of smartphones and tablets and advertisers are looking for ways to leverage this changing behavior of users across the globe.
Offering: Google AdWords came up with two major overhauls for addressing the prevailing problem. The first was “Remarketing” through AdWords where in the advertisers were able to target their existing users based on their online behavior across devices owned by them.

An associated change was “enhanced campaigns” which helped advertisers to give different ads based on the devices their customers were using.
The next big change was “AdWords Express” which was solely focused on helping small businesses come with an ad campaign in less than 5 minutes. This allowed them to give away ads based on pre-decided keywords and topics relevant to a startup. Continue reading

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Pharmaceutical Industry and Public Policy – An Indian Perspective

Pharmaceutical Industry and Public Policy – An Indian Perspective

In the past 3 years, since 2012, there have been many occasions when Indian policy makers have experienced pressure from developed nations to agree to stronger IP provisions. The ongoing Asian FTA1 and the 2012-13 EU-India FTA2 have seen developed countries like Japan and UK trying to include stricter IP provisions in trade agreements holding up negotiations until those terms were accepted. The USITC (United States International Trade Commission) launched an investigation into Indian IP laws in 2014, at the behest of many firms who have been demanding designation of India as a Priority Foreign Country, the classification given to foreign countries that “deny adequate and effective” protection of intellectual property rights”. This would allow the use of bilateral pressure including diplomatic tools and trade sanctions to reverse India’s policies on local content and intellectual property protection.3 This article tries to explore the current scenario from India’s perspective and how its current stand on Intellectual Property Rights (IPR) may affect it.

From the text written against Indian IP laws one can discern that the international outcry has been fuelled in the wake of the following decisions by the Indian courts:

1. In April 2013, Novartis lost a six-year legal battle after the Supreme Court ruled that small changes to its leukemia drug Glivec would not get a new patent
2. Recently India upheld a compulsory license of Bayer’s cancer drug Nexavar, effectively allowing generics firms to copy the patented drug
3. The patent for Pfizer’s cancer drug Sutent was revoked
4. Roche’s patent on Pegasys, a hepatitis C drug, was denied

The major perception of these decisions is that they are not TRIPS compliant, they erode the rights of the Big Pharma companies to enter, and operate in India and access 1.2 billion new customers and they hinder innovation. These issues have been noted by bodies like the US-India Business Council, PhRMA and the US Ways & Means Committee members.5

How far are these objections valid? In the past 9 years, since the adoption of TRIPS India has been in a position to grant compulsory licenses. It has however granted a total of 1 license and rejected many more. The compulsory license granted to Natco was for the Cancer drug Nexavar because as reasoned by the bench “it had not met the reasonable requirement of the public. It had not “worked the patent” or manufactured it to a reasonable extent in India. Besides, the drug was not available at an affordable price.” Bayer sold a month’s supply of Nexavar for INR 2.8 lakhs, while Natco plans to sell it for INR 8,880. Natco is to pay 6% of net sales as royalty to Bayer.6 The GLivec, Sutent and Pegasys licenses were revoked since these drugs had obtained patents in India under ever-greening practices to extend their monopoly.13 There are many academicians who have noted that India’s decisions are in fact fully compliant and within the IP framework laid out for developing countries under TRIPS flexibilities.7 The keyword here is “developing countries”. India is within its rights to safeguard the interests of a population which pays 70% of its medical expenditure out of pocket as opposed to the developed nations, many of which have mandatory health insurance.

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Social Media Strategy of NaMo

Namo

Elections in India have historically been fought on the basis of the amount of financial resources and the strength of the on ground work-force. It was for the first time in India’s history that social media tools were used by political parties in their campaigns at such magnitudes. The impact of this tool was particularly observed in the professionally managed Narendra Modi (NaMo) campaign, the side which ended up winning 282 seats and formed a majority government in India after three decades.

Before we get into the details of the campaign, it is important to understand social media as a marketing tool and its characteristics. Not a very old tool, social media has seen unparalleled growth in its usage pattern in the last few years. With 106 million active tech-savvy users1 in India, social media presents a clear opportunity for marketers targeting this segment. The effectiveness of the tool could be understood taking three primary evaluative factors into consideration: (1) Aggressiveness of effort; (2) Focus of message; and (3) The resultant impact of the marketing effort. The aggressiveness of effort can be measured in terms of financial resource investment and the reach of the each party’s campaign. Also, it is general understanding that the long term retention of the message in the minds of consumers is directly proportional to the level of focus (concentration on the intended issue) of the message (since a focused message would have easy connect and recall value). Finally, long term impact of the media is a factor of the above two metrics and is evaluated in terms of the results of the campaign objective.

As for the recent elections, there were three primary parties that used social media in their fight for the big pie: Bharatiya Janata Party (BJP), Indian National Congress (Cong) and Aam Aadmi Party (AAP). These parties primarily used Facebook, twitter and YouTube as their social media tools to interact with the public. Evaluating the effectiveness of the social media strategy used by the three parties:

-          Focus of message: This was the primary differentiator that was observed in the campaign of the three parties. The Cong with its broad messages like ‘inclusive growth’ and ‘women empowerment’ could not garner much interest in the social media as its extremely low level of detail was insufficient for the tech-savvy social media user population. The AAP with its ‘Anti-corruption’ message was extremely effective at first (in the Delhi vidhansabha elections), but this interest zoned out with the failed governmental effort they displayed in the Delhi state assembly. The BJP, on the other hand, was very focused on their ‘economic growth and development’ message. This they chose to build up on their strengths and focused on Narendra Modi’s successful (and widely discussed) Gujarat growth model. Their message was very clear with its objectives, actions and potential impact. This structured and clear communication was well received by the social media as such actions were very infrequently heard of in the Indian political scenario. This kind of message did not just communicate their preparedness for running the government but also openness and consent to be judged on their measurable targets.
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