Markets in the Western world are near saturation--that is a common theme you get from carmakers Nissan-Renault and retailer Metro AG in the stories that follow. The opportunities lie in fast developing countries, especially India, China, and Russia. It's an oft-heard line, but the challenges are many. The so far unconsolidated Indian auto market practically asks that foreign automakers seek out many partnerships with several local firms since they are unsure which ventures will pan out. Meanwhile, foreign retailers are also not allowed to open up their own stores and must tag up with local entities.We begin with the latest exploits of a legendary auto magnate, the peripatetic Carlos Ghosn. He recently went on a tour of India signing deals with anyone and everyone to ensure that the future of India's car market has a distinctly Renault-like future. Industry observers are guessing what Ghosn is playing at by signing deals with so many local firms, but I simply see it as portfolio diversification in an uncertain, rapidly evolving market. Ghosn is hedging his bets in the domestic automobile industry. From the Economic Times:
Meanwhile, the Wall Street Journal has an interesting story on how German retailerOn October 29, Nissan Renault chief Carlos Ghosn made a whistle-stop trip to India to crack two mega deals. He touched down in Chennai to ink the $500-million alliance between Nissan and Ashok Leyland for light trucks and then hopped on to a chopper for a flying visit to Bajaj Auto’s Chakan plant for a chat on the $3,000 car.
Although he started with a low-key, sourcing trip two years ago, right now Ghosn seems to be working at break-neck speed to get his India strategy in place. In just over six months since the launch of the Logan, he has worked out a multi-partner strategy, tied up with Ashok Leyland for Nissan trucks, worked out an ultra small car project with Bajaj Auto and is reputedly talking to both Eicher and Bajaj for Renault light commercial vehicles. Add to that the global production arrangement with Suzuki through Maruti and the greenfield plant and powertrain facility in Chennai and his plate looks full indeed.
Suddenly some of the biggest names in India’s automobile business have tied in a part of their fortunes with his somewhat radical plans for this market. And Ghosn has managed to put his finger in just about every pie — from light trucks to a $3000 car. In the next three years, his strategies and plans for India will have a profound impact on the busiest segments of this market as well as on his partners.
Ghosn — who is considered both a maverick and a messiah by global auto analysts — is clearly a man in a hurry. Hence the flurry of India deals this year. Says a senior official with one of his Indian partners: “The sense that one gets talking to his team is that he is almost making up for lost time. The question is, will the organisation be able to keep up with the man?”
What may have his partners worried is whether Ghosn is spreading himself and his companies too thin. Says a Delhi-based partner with an MNC consultancy firm: “What his partners may be wondering is whether they will get as much as they expect from the deal. Or will Ghosn’s multi-partner strategy end up confusing and cannibalising?”. No other auto MNC has entered India through three joint ventures.
Often described as Motown’s only rockstar, for Ghosn that sorbiquet is not just PR hyperbole. In India he has often kept his potential partners guessing, sometimes lobbing surprises through his announcements in the press. In late April he told ET: “Cooperation with M&M [Mahindra & Mahindra] on LCVs [light commercial vehicles] has neither been discarded not decided.” But analysts say M&M’s existing tie-up with ITEC put it out of contention on the LCV front and Anand Mahindra was simply not interested in the small car game.
By August, Ghosn was already talking to both Leyland and Bajaj and had announced his plans to enter the $3000 car. There hasn’t been a single dull moment since the Logan launch.
Ghosn is an almost mythical figure in the auto industry. A turn around agent who managed to bring Nissan back from the brink, he is credited with his group’s solid bottomline and, till recently, equally decent topline. Most of the Ghosn lore comes from Japan where he is widely revered. But even in clubby Europe, he is something of a hero, a local Lee Iacocca of sorts.
Auto analysts though say the India story has become more and more important to Ghosn as home markets Japan and Europe come under pressure. Ghosn’s dream run as CEO No 1 was already in trouble by the time he was posing for pictures with Anand Mahindra in Paris last November. Renault’s sales at home are stuck in first gear and Nissan was facing a product pipeline problem that prompted Ghosn to extend the “Nissan Value-Up commitments” by one year when he announced the company’s 2006 results late AprilUnflinchingly candid, Ghosn is the first to admit he is pressing the accelerator in India because things aren’t going that well elsewhere. “All across developed markets—in western Europe, US and Japan—sales are not growing,” he told ET two weeks ago. “The growth is here, in India, China, Russia. We already have a big JV up and running in China and we have doubled sales in Russia. In India, we need partners who will help us learn the market and get it right. And of course we can also learn something from our partners about India’s famed frugal engineering culture,” he explained.
Analysts say there’s a reason why the biggest names in India are flocking to Ghosn. Unlike the rash of alliances in the early 90s, when the Indian partner brought little more than a local distribution network to the table, this time round the focus is on moving up the food chain. At the joint press conference in Chakan, Bajaj Auto MD Rajiv Bajaj said: “We wish to participate in the ultra low cost car project because we feel we can add value across the supply chain from deals to vendors and right through. It will be a learning experience for Bajaj.” Ghosn dittoed that heartily: “What we want to do is take forward the skills and cost structures of two/three wheelers to four wheelers.” That’s why, he said, Bajaj will “lead” the project.
Ghosn is clear his strategy of having a partner in every segment makes perfect business sense. “It will work if you are very clear what you are partnering about,” he said. “We will have multiple partners for multiple segments. There is no fuzziness. Even the agreement with Suzuki doesn’t overlap with the ultra low cost car because they are completely different products at different price points.”
Ghosn may see no fuzziness. But try as he might to make it all appear seamless, some in the auto industry say he is playing a clever game to not rely too much on a single partner and to keep each guessing about his plans with the others. Auto analysts liken this to a giant jig saw puzzle. If the pieces fit, some of Ghosn’s rockstar reputation will rub off on India. His partners are hoping that’s exactly how things turn out.
Metro AG has practically had to reinvent the Indian grocery supply chain to ensure that produce arrives fresh and on time. These are no mean challenges given the weight of tradition and India's famously spotty infrastructure. I've already posted about the entrenched and often belligerent retail system of mom-and-pop operators. This article also talks about the seemingly endless chain of middlemen in the current Indian retail system which drives up costs and makes it more likely that produce gets spoiled before reaching consumers.
To open stores in India, German retailer Metro AG first had to teach farmers like N. Madhu to stop piling vegetables on the ground after picking them -- the bacteria from the dirt can slash the shelf life. Today, Mr. Madhu's gourds go directly from the vine to the plastic crates Metro gave him."They taught me if I stop using sacks and give them uniform sizes they will pay me the best price," said Mr. Madhu one recent morning as he unloaded crates of green, foot-long gourds from his small family farm at the Metro distribution center in Hyderabad. Farmers like Mr. Madhu are a critical part of operating in India for Metro, the world's fourth-largest food retailer measured in sales.
Metro is the first Western retailer to tackle a fundamental problem facing Wal-Mart Stores Inc. and other retailers trying to enter India today: how to stock their huge supercenter stores with produce that must travel India's rough roads, in outdated trucks, and that come from farmers, shepherds and fishermen who use techniques from a century ago. For all the promise that India's retail industry holds -- it is estimated today at $300 billion and growing -- it requires focusing as much on managing its supply chain as it does on attracting shoppers.
Metro's advantage over the others may appear slight. Since entering India in 2003, it has opened just three wholesale markets -- its customers are small retailers, restaurants and hotels -- with another two scheduled to open next year. But it has a huge advantage in infrastructure -- it has set up one of the first supply chains transporting refrigerated goods across India.
"Stores are just the tip of the iceberg -- 90% of the work is under water," says Thomas Hübner, chief executive officer of Metro Cash & Carry International, the division that runs the company's India operations. "People must be aware that setting up a business in India can take 10 to 15 years."
Wal-Mart, which used its supply-chain expertise as a critical weapon against rivals when expanding in the U.S., is teaming up with an Indian partner, Bharti Enterprises Ltd. "Our wholesale cash-and-carry venture will invest in setting up an efficient supply chain that will link farmers and small manufacturers directly to retailers, thereby maximizing value for farmers and manufacturers on the one end and retailers on the other," said a Wal-Mart spokesman...
Foreign retailers aren't yet allowed to own stores in India. They have to come in through franchise agreements with Indian companies or as wholesalers. They can also own logistics companies to supply to Indian retailers.
"You have to start from scratch," says Ira Kalish, director of consumer business for Deloitte Research LP in Los Angeles, who has studied the Indian consumer market. "You start with an inefficient supply chain and gradually invest in improvements."
India's traditional way of transporting vegetables can be seen in the southern city of Hyderabad. While the city is nicknamed Cyberabad for its high-tech companies, its wholesale vegetable market is decidedly low-tech. Large open trucks, piled high with loose onions and carrots and sacks of green chilies sit roasting in the midday sun as they are unloaded onto the backs of long lines of wiry men. The produce is weighed and then piled high in unrefrigerated warehouses. Vegetable traders use bags of squash as chairs and beds.
The produce is only about halfway on its journey to the consumer, and it is already looking sad. Large distributors buy from the market and sell to midsize retailers, who then sell to the mom-and-pop shops and cart pushers that make up the bulk of the Indian grocery trade. The chain can involve up to seven intermediaries.
Economists estimate that up to 40% of produce in India is ruined or lost. Metro is working to get that figure to 7% at most. Metro says its supply chain for fruit and vegetables is too new to reliably say how much progress the company has made in fighting waste.
Metro, based in Düsseldorf, has experience building supply chains to stock its 2,400 retail and wholesale stores in 31 countries. Wal-Mart, by comparison, operates in half as many markets. Metro, which posted $85.3 billion in sales last year, is under pressure to succeed in India because, like Wal-Mart, it increasingly relies on international operations for growth.
"It's a way of securing our future," says Metro's Mr. Hübner. "At some point, our business in India and China will be bigger than that in Europe. My successor, or that person's successor, might be Indian or Chinese."
When Metro first opened a shop in Bangalore four years ago, locals didn't eat much fish because seafood didn't make it inland fresh enough to be edible. So, Metro taught fishing crews how to cool fish by immediately gutting and stuffing them with shaved ice. Before, few fishermen had ice and most used -- and reused -- chunks of ice that damaged the fish. The company now sells up to five tons of seafood (between 80 and 120 types of fish) in the Bangalore region every day.
Metro managers visited shepherds to show them how to vaccinate their herds and treat the animals for sicknesses like bluetongue and foot-and-mouth disease. Metro imported British sheep to breed with their Indian counterparts, which tend to be too skinny for Metro's meat rack.
Metro also had straightforward lessons for vegetable farmers: Don't water spinach the night before it is picked; don't place cucumbers on the ground after you pick them; pack fruit and vegetables in crates instead of burlap bags; and don't store onions in warm warehouses or they will sprout and spoil.
Metro cut out middlemen by sending its own truck drivers to collect directly from some farmers, in trucks refrigerated to between 42 and 46 degrees. It had to make sure its suppliers didn't turn off the refrigeration in their trucks to save gasoline, a common practice among Indian drivers. To check, Metro started measuring ice cream from the center of the package to make sure there had been no melting along the way. "In a place without any cooling systems at all, a truck cooled to exactly [42 degrees] looks like a thing from the moon," says Mr. Hübner.
Such efforts to build a modern supply chain have met some resistance from middlemen who are used to transporting produce and now seeing their jobs eliminated under Metro's plan. To protect the middlemen and local small retailers, some Indian states have banned foreign companies from selling agricultural products. Mr. Hübner says he expects this ban to be lifted soon because the company has gone through lengthy administrative steps with local authorities.
Metro's efforts have attracted restaurant owners who say they shop there because it has everything in one place and is rarely out of stock. They used to buy vegetables, rice, meat, and drinks from many small suppliers that often run out.
