Hell Dorados

Post the frenzied activity that begins in any sector opened up in the Indian Economy, many entrants, including the larger ones, lose out due to lack of long term strategies and inability to adapt to business dynamics. Ultimately, market forces take them off road, putting paid to all the aspirations that convinced them to enter the sector in the first place

Terms like intense competition, mergers and acquisitions and low margins are not new to Indian market by any chance in today’s day and age. After all, the Indian economy is labelled as one of the most lucrative on the global charts. That is precisely why, as numerous sectors like telecom, aviation, retail and insurance opened up one after another; a number of Indian business houses ignored all considerations of synergies, potential growth impediments or possible gloomy scenarios and took the plunge, led by the Tatas, Birlas, Ambanis, Mallyas, et al.

History has repeatedly taught an important lesson that these players seemed to have missed. The story of El Dorado, the mythical ‘City of Gold’ that captured the fancy of European explorers, gained popular appeal in the early 15th century. Multiple expeditions were undertaken in vain to discover this city; till better sense ultimately prevailed, two centuries later! The fact is that a number of Indian businesses have also been victims of two precarious beliefs w.r.t. the so called sunrise sectors – one that the sheer depth of their resources would ensure that they prevail over every eventuality in the sector concerned and second that their stupendous success in their current businesses automatically made them the best bets for these new business opportunities.

Be it television manufacturing that saw a frenzy of competition in the early 1990s and eventually led to many manufacturers exiting or the telecom services sector, wherein new entrants in the industry like MTS, Uninor and Videocon have been disturbing the margins of the big boys like Reliance and Bharti Airtel to the core, such instances abound. In fact, some of the new entrants in telecom are realising that they themselves face a hard time. The fact is that with the huge number of players per circle now and the continuously ARPUs (Average Revenue Per User), it’s only a matter of time before consolidation happens. In retail, we saw the entry of players like Reliance and Birla along with some zealous competitors like Subhiksha and Vishal Megamart. Most of them faced the perils of untethered expansion and had to shut down stores. Subhiksha and Vishal Mega Mart ultimately went belly up. Similarly, entrants into aviation like Air Deccan and Sahara had to bow out of the race as they found their margins getting unsustainable due to myriad reasons. And despite the consolidation phase that passed them by, the remaining players have found it just too hard to keep their balance sheets in the black.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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