Model case with questions
A model case with questions has been provided below for the benefit of students appearing for July 2012 examinations.
Case: Titan- The Outsourcing Journey
Concepts involved in the case are as follows:
· Integration strategies
· Partnerships
· Entry and differentiation strategies.
The questions are based on both the case data and the concepts indicated above and are in the multiple choice question (MCQ) pattern.
TITAN – THE OUTSOURCING JOURNEY
“Once Titan puts its valuable name on the watch it does not matter to the customer whether we have manufactured it, or assembled it, or fully outsourced it.”
- Jacob Kurien, Vice-President (Marketing), Titan, in 1999.
In late 1999, the top management of Titan Industries Ltd. (Titan), India’s leading watch, clock and jewelry manufacturer, was surprised when several senior executives threatened to resign. The threats reportedly came after a long period of employee unrest in the organization. The reason behind the unrest was the company’s decision to increase the level of outsourcing in its manufacturing activities while limiting production facilities for just assembling purposes.
Titan’s Vice-Chairman and Managing Director Xerxes Desai (Desai) quickly issued a statement stating that the above was not true. However, this was in sharp contrast to his earlier statements in the media. In an interview to a business magazine[1], Desai had remarked, “We will manufacture only if we can do it faster and cheaper than anyone else in the world.” Even as the company worked towards explaining its strategies clearly to the employees, analysts could not help remark that Titan was already sourcing a large part of cases and movements, key watch components, from within and outside India. Moreover, the company had always been sourcing a variety of raw materials such as stainless steels, tool steels, engineering plastics, tools, consumables, components and specialty movements[2] for its watch manufacturing operations through vendors spread across 20 countries, mainly in Asia and Europe.
The company’s management seemed to have realized that global sourcing of certain components made better business sense. Media reports even quoted watch industry officials claiming that companies like Titan had ‘no option but to move away from manufacturing and towards trading in the long run.’ This was not a very surprising move as it seemed but natural for the company to look for cost effective sourcing options at a time when manufacturing seemed rather costly.
Titan’s decision was influenced by a host of factors that made the company realize the potential benefits of outsourcing as a tool for holding on to its position in the Indian watches market. The liberalization of the Indian economy and the subsequent removal of quantitative restrictions[3] on watch imports in the late 1990s, forced Titan to focus more on marketing efforts rather than manufacturing to retain its competitive edge in the future.
Titan was promoted as Titan Watches Ltd. jointly by Questar Investments Limited (a Tata group company), Tata Sons, Tata Press and the Tamilnadu Industrial Development Corporation Limited (TIDCO). The company was incorporated in July 1984 in Chennai, India, in technical collaboration with one of the world’s largest manufacturers of watch movements, France Ebauches, a French company. Unlike Hindustan Machine Tools (HMT), the leading manufacturer of mechanical watches at that time, Titan Watches decided to concentrate on manufacturing quartz watches.
The company established its first manufacturing facility in Hosur, Tamil Nadu in 1987. The state-of-the-art manufacturing facility, set up with technical know-how from Europe and Japan, had an installed capacity of 3.5 million watches per annum. In 1988, the company established a component manufacturing facility and in 1990, it started a case manufacturing plant, both located close to the Hosur plant. In 1992, the company integrated backwards to manufacture step motors.[4] During the same period, it began manufacturing electronic circuit blocks, used in its watch movements. The Rs 2.7 billion watch and clock manufacturing facilities were spread over a built-up area of 42,000 square metres.
The company also set up a watch assembly unit with a capacity of 5 lakh watches in Dehradun, Uttaranchal. In 1992, Titan Watches entered into a joint venture with Timex Corporation of USA to market Timex watches in India. The same year the company set up a joint venture with the Economic Development Board of Goa to manufacture electronic circuit boards in Goa in an effort towards indigenization. Titan set up its fully integrated, Rs 400 million jewellery plant in 1994 over a built-up area of 13,500 square metres in Hosur. The plant had a capacity of manufacturing four tonnes of gold a year. Due to poor market response the company discontinued the manufacture of jewelry watches.
The company also set up a separate manufacturing facility for solid link, sheet metal bracelets, alarm timepieces and premium table clocks in 1995. In 1995, Titan Watches overtook the market leader HMT by selling 3.2 million watches against the latter’s 3 million. The same year, the company changed its name Titan Industries Ltd. in order to change its image from that of a watch manufacturer to that of a fashion accessories manufacturer. Titan also introduced the Tanishq range of 18-carat gold jewelry.
Over the years, the Hosur facility went on to become one of the largest integrated watch-manufacturing units in the world, employing around 3500 people. The facilities in Hosur included a computer aided design (CAD)[5] and prototyping unit, a comprehensive tool room with capacity for manufacture of precision tools and die-sets. Besides, Titan had a wide range of computerized numeric control (CNC[6]) machines. Gold was refined and alloyed in-house at the Hosur plant, but the design center for jewelry was located in Bangalore.
From the very beginning, Titan had used cost cutting as a means to achieve competitiveness and improve profitability. It realized that sustained advantage in the marketplace could be achieved only by keeping costs low and launching innovative/technologically superior products. To improve productivity, quality and safety, Titan automated select manual and semi-automatic operations in movement and case manufacturing. Titan had always implemented World Class Manufacturing (WCM) practices that helped keep costs under control. As part of the WCM initiatives, Titan implemented practices such as Just-In-Time Manufacturing, Total Productive Maintenance and Total Quality Control.
In 1996, Titan increased the Hosur plant’s capacity to cater to the growing domestic and international demand from 3.5 million to 4.18 million units per annum. In 1997, the company launched its own range of table clocks to cash in on the fact that there were no branded players in the segment. In the same year, it began to manufacture watches for several prestigious international brands. In 1998, Titan decided to discontinue the joint venture arrangement with Timex due to certain differences. In the same year, it increased the capacity of the Hosur plant to 5 million watches.
END OF CASE
Answer the following questions:
(Note: Each question carries 1 mark)
1. / Titan was incorporated in technical collaboration with one of the world’s largest manufacturers of watch movements, France Ebauches, a French company. Which of the following would be the reason for this?(a) / Titan wanted to gain competitive advantage through product and process expertise
(b) / Titan wanted to increase its market share
(c) / Titan wanted to satisfy legal requirement of the host country
(d) / Titan wanted a foreign partner to satisfy prospective customers.
2. / Titan established its first manufacturing facility in Hosur, Tamil Nadu, in 1987. The company established a component manufacturing facility in 1988 and in 1990, it started a case manufacturing plant, both located close to the Hosur plant. In this regard, identify the possible reason for setting plants near to the existing plant.
(a) / The work of plants could be integrated with that of other plants
(b) / The management of the company thought to effectively utilize the land
(c) / Each plant could be treated as number of independent units under a single company
(d) / The location would have more skilled labor and enough resources required for a watch manufacturing plant.
3. / In 1992, Titan started integrating by manufacturing step motors for watches and during the same period, began manufacturing electronic circuit blocks, used in its watch movement. This kind of integration strategy adopted by Titan can be referred to as
(a) / Forward integration
(b) / Backward integration
(c) / Market penetration
(d) / Horizontal integration.
4. / Titan started selling its products in over 40 European, West Asian and South east Asian markets through its subsidiaries in London, Singapore and Dubai. Which of the following strategies is adopted by Titan to enter into foreign markets?
(a) / Licensing
(b) / Indirect exporting
(c) / Direct exporting
(d) / Joint venture.
5. / In 1992, Titan Watches entered into a partnership with Timex Corporation of the US to market Timex watches in India and with the Economic Development Board of Goa to manufacture electronic circuit boards in Goa. This kind of forming partnerships can be referred to as
(a) / Joint venture
(b) / Vertical integration
(c) / Acquisition
(d) / Downsizing.
6. / In 1992, Titan watches partnered with the Electronic Development Board of Goa started manufacturing electronic circuit boards in Goa for the watches to suit the Indian environment and market. This type of effort made by Titan is referred to as
(a) / Downsizing
(b) / Indigenization
(c) / Liberalization
(d) / Westernization.
7. / Titan set up a watch assembly unit in Dehradun, Uttaranchal to produce five lakh watches. Which of the following does it indicate?
(a) / Planning at the plant
(b) / Design of the plant
(c) / Facility of the plant
(d) / Capacity of the plant.
8. / In 1995, Titan Watches overtook the market leader Hindustan Machine Tools (HMT) by selling 3.2 million watches against the latter’s 3 million. The same year, the company changed its name Titan Industry Ltd. in order to built identity of a fashion accessories manufacturer than that of a simple watch manufacturer. Which of the following types of differentiation did Titan want to create?
(a) / Product differentiation
(b) / Service differentiation
(c) / Image differentiation
(d) / Personnel differentiation.
9. / In 1980s, HMT was the leading manufacturer of mechanical watches. In In 1995, Titan Watches overtook the market leader Hindustan Machine Tools (HMT) by selling 3.2 million watches against the latter’s 3 million. In which of the following ways did Titan overcome the competition?
(a) / Concentrating on manufacturing quartz watches
(b) / Focusing on exporting the watches
(c) / Deriving benefits of plant utilization
(d) / Focusing on expansion of plants.
10. / Which of the following strategies was adopted by Titan to achieve cost competitiveness and profitability?
(a) / Manufacturing quartz watches
(b) / Reducing cost
(c) / Forming joint ventures
(d) / Expanding product lines.
ANSWERS
1. / A / Titan wanted to gain competitive advantage through product and process expertise through its collaboration with the French firm.
2. / A / The reason for the location of the plant is to integrate the process of manufacturing.
3. / B / Getting into manufacture of components/parts that are a part of its supply chain/inventory can be termed as backward integration.
4. / C / The strategy of selling directly through its subsidiaries may be termed as direct exporting.
5. / A / Joint venture can take place between two firms like between an Indian company and a foreign company or between firms in one industry.
6. / B / The efforts made by Titan in the process of setting up a joint venture with the Electronic Development Board of Goa are referred to as indigenization.
7. / D / Capacity indicates the maximum output that can be produced in a given system. In this case, producing five lakh watches in Dehradun indicates capacity of that plant.
8. / C / In 1995, Titan Watches overtook the market leader HMT by selling 3.2 million watches against the latter’s 3 million. The same year, the company changed its name Titan Industry Ltd. in order to change its image from that of a watch manufacturer to that of a fashion accessories manufacturer. This was created to make the public perceive the company or its products.
9. / A / Unlike HMT, the leading manufacturer of mechanical watches, Titan Watches decided to concentrate on manufacturing quartz watches. As a market follower, Titan attacked the weak point of HMT by manufacturing quartz watches instead producing mechanical watches.
10. / B / From the very beginning, Titan had used cost cutting as a means to achieve competitiveness and improve profitability.
[1] Businessworld, August 30, 1999.
[2] Movement refers to the assembly consisting of the principal elements and mechanisms of watches/clocks.
[3] Restrictions on imports that limit the quantity of the good or service traded, usually in the form of ‘quotas’ or ‘voluntary export restraints.’
[4] The stepping motor controls the gears in a watch, which in turn rotates the hands
of the watch.
[5] CAD systems enable engineers and architects to carry out design activities on the computer. They allow engineers to view a design from any angle on the computer and make it possible to zoom in or out for close-ups and long-distance views. It also keeps track of design dependencies so that when the engineer changes one value, all other values that depend on it are automatically changed accordingly.
[6] CNC machines are machines that are controlled by computer programs and run as dictated by the program, independent of the operator.