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issue: May 2004 APPLIANCE Magazine

APPLIANCE International
Survival of the Fittest


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by Adite Chatterjee, India Correspondent

ON LOCATION: APPLIANCE magazine traveled to Chitegaon, India to report on Videocon’s refrigerator and washing machine factories.

It is one company that was not expected to survive the multinational onslaught. A sugarcane and cotton grower, Nandlal Madhavlal Dhoot set up appliance maker Videocon International Ltd. in 1985, and by the late 1980s, the group had emerged as one of the top manufacturers of television sets in India.

Competitive pricing has always been at the heart of Videocon’s successful sales strategy, but few thought that Videocon would be able to put up a fight against global players, which boasted deeper pockets, extensive product portfolios, and big expenditures on research and development. However, Videocon has not just survived, but emerged as one of the leading brands in the Indian market.

Honing In On the Global Market

The Videocon group is the largest homegrown consumer electronics and home appliances company in India today with a turnover of Rs 50 billion (approx. U.S. $1.1 billion), 18 manufacturing facilities, and an employee base of 10,000 people. Currently, it is the number-four player in the Indian household appliances segment and is competing with Whirlpool, LG, and Samsung for the leadership position in an intensely competitive market.

 

With an installed capacity of 600,000 units per year, Videocon’s Chitegaon refrigerator manufacturing facility is currently utilizing up to 75 percent of its installed capacity. Pictured is the refrigerator maker’s assembly line. APPLIANCE magazine photo.
The group is not only looking at consolidating its position in the domestic market, but also aims to grow its exports. It has begun selling its made-in-India appliances to markets in the Middle East and Europe. Says Pradipkumar Dhoot, president, and son of the group’s founder, “The future for Chinese and Indian companies is very bright. Haier, TCL, and Kelon are among the Chinese brands that have established themselves as global players. We hope to be counted among the top 10 brands in the world in the coming years, and we are working toward that goal.”

Brave words? Perhaps, but Videocon’s ambitions are matched by action. In 1997, Videocon acquired an Italian compressor plant with the aim of using it as a gateway to Europe. Today, many refrigerator brands sold in Europe have compressors made by Neechi Compressors, a Videocon subsidiary. The group has also set up an air-conditioning plant in Oman and plans to set up a refrigerator plant in Indonesia and South Africa in the next 2 years. In addition, it has set up a sourcing company in China to be able to source components and tools from China and other Southeast Asian countries.

Focusing on Manufacturing Capabilities

The Videocon success story has been scripted in its facility in Chitegaon, which is spread across 120 acres (485,624 sq m) and situated 13 km from the city of Aurangabad, in western India. The 30,000-sq-m washing machine plant within the Chitegaon facility was set up in 1990. The appliance maker has pioneered the washing machine concept in the Indian market; it claims to be the first company to introduce washing machines. In fact, an often-quoted anecdote is how farmers’ wives in Punjab would use the washing machine to churn curd and make lassi, a summertime thirst-quencher.

Videocon is also said to be the first appliance company to introduce the frost-free refrigerator in India. In 1992, a 32,000-sq-m refrigerator manufacturing facility was set up on the Chitegaon premises. While the refrigerator facility has an installed capacity of 600,000 units per year, the washing machine facility can manufacture up to 500,000 units per annum. Both facilities are currently utilizing up to 75 percent of their installed capacity.

Videocon’s growth has seen several phases. During the first phase of its appliance-making venture, the company collaborated with Matsushita of Japan for technical and design capabilities. “Videocon has always focused on product quality and durability,” notes

S. Sethuraman, director, Videocon Appliances Ltd. “The fact that we have been able to achieve this is a result of our close collaboration with Matsushita. Over the years, we have reinforced our design and quality standards to meet the contemporary needs of consumers.”

And while Videocon no longer needs Matsushita’s help in making appliances, it still shares a close relationship with the Japanese company. In fact, when Matsushita set up its own washing machine facility in India—in Ranjangaon, near Pune—Videocon helped to set up the plant. In addition, Videocon Group currently has a 30-percent equity stake in the Matsushita factory that manufactures the National Panasonic brand of washing machines.

The Chitegaon facility has invested in backward integration. Says Mohan Paul, deputy general manager and head of the refrigerator division: “We manufacture everything from the copper wires that go into the refrigerator to the packing boxes.” Mr. Sethuraman adds: “This gives us leverage, as we can control the quality of our products.”

Most appliance makers in India outsource the motors that go into the washing machines. However, Videocon has its own in-house motor assembly unit. Explains Mr. Sethuraman: “Videocon has established a reputation for the quality of the motors that it produces. It has become one of the major strengths of our brand.”

Similarly, the facility has a well-equipped plastic injection molding shop that caters to the plastic requirements of Videocon’s washing machine and refrigerator divisions, as well as those of its electronics division. The mold shop, which boasts of a wide range of equipment, including high-capacity machines of 1,300 and 1,600 tons, have been imported from the best global manufacturers such as Toshiba, Chensong, and Windsor. Says Dongil Kim, chief technical officer, Plastics, “Aesthetics drive sales of consumer appliances today. By having an in-house plastics shop, we can not only control the quality of the plastics that are being used, but also make huge cost savings in terms of logistics management.”

A well-equipped tool room is another important feature of the Chitegaon facility, as it caters to the company’s requirement of upgrading model designs and developing components for the new models.

The high level of backward integration in the facility also makes it imperative for the company to have processes in place to ensure a smooth flow of material and a glitch-free production environment. Videocon has adopted the Japanese 5-S system to ensure process and product quality. The five principles include seiri (sorting), which ensures that the work area is free of all unnecessary items; seiton (systematic arrangement), which calls for arranging and organizing items in prefixed locations; seiso (spic and span), which ensures that the work area is organized and all pieces of equipment are kept clean; seiketsu (serene atmosphere), which emphasizes the need for a serene working environment; and shitsuke (self discipline), which focuses on the need for self-discipline in every worker. “These practices are monitored on a daily basis, and workers are given feedback on their performance,” says Mr. Sethuraman. Daily feedback on the quality of products being produced at the facility is also provided to the workers, he adds.

 
While most Indian appliance makers outsource washing machine motors, Videocon has its own in-house motor assembly unit. APPLIANCE magazine photo.
 

“The idea is to get it First Time Right,” notes Mr. Sethuraman. “The daily monitoring and evaluation make the whole system transparent and accountable.” These systems helped Videocon achieve the ISO 9002 quality certification in 1994 and the latest version of ISO 9000 in 2003 for its refrigerator plant and in 2002 for its washing machine plant.

As a result of its processes, Videocon says it has been able to offer consumers products that meet their expectations of quality, reliability, and durability. Recently, a voluntary consumer group, VOICE, tested and rated the top refrigerator brands in the country. In November 2002, VOICE ranked Videocon’s refrigerator as the brand with the highest cooling efficiency (i.e. the “pull down time” is just 78 min compared to Kelvinator’s time of 202 min, according to VOICE). The voluntary consumer group says Videocon also has the lowest energy-consuming refrigerator among eight top brands. As a result, the electricity costs to the consumer is just Rs 876 per (approx. $19) annum. On the two functional aspects—cooling efficiency and energy efficiency—Videocon scored over other brands, thus vindicating the company’s investment in manufacturing its own compressors.

The emphasis on product quality has also enabled Videocon to establish itself as an OEM supplier to many of the multinationals that have entered the Indian market. Samsung, Whirlpool, and Akai are among the prominent brands that have sourced their refrigerators from Videocon’s facilities. In the washing machines category, Videocon has been a major OEM supplier to Godrej and Whirlpool. Says Mr. Sethuraman: “Our experience as an OEM supplier has enabled us to further enhance our manufacturing capabilities.”

Videocon set up a new factory in Bangalore, Applicomp India Ltd., in 2000 to manufacture compressors, which it sells to other leading appliance companies such as Whirlpool and Daewoo, apart from producing high-end refrigerators and India’s only top-loading, fully automatic washing machine. The company is also undertaking expansion of its facilities in other locations, including the one in Noida in Uttar Pradesh and in Kolkata in the state of West Bengal. These plants are being developed to cater to the regional markets in North India and East India, respectively.

Consolidating for Market Leadership

Throughout the last couple of years, Videocon has been focusing its attention on regaining its market leadership position in the refrigerators market, as well as consolidating its hold in the washing machine category. Says Sunil Tandon, vice president of Marketing, Videocon International Ltd., “We have been working our model mix, revamping our distribution network, and updating our service setup.” The company’s promotion campaign has also gotten a new look, as it has named India’s top-rated film star, Shah Rukh Khan, as the group’s brand ambassador.

 

Videocon is said to make India’s only top-loading, fully automatic washing machine. The appliances are made in its 30,000-sq-m washing machine plant located in Chitegaon, India. APPLIANCE magazine photo

In terms of Videocon’s marketing strategy, the company has decided to strengthen its value-for-money positioning by offering additional features at every price point. For instance, traditionally only the premium-end refrigerators have offered models with water dispensers. “We want to take the customer up the technology curve, and, therefore, we have introduced direct-cool refrigerators with water dispensers, which have been branded Watermatic,” says Mr. Tandon. “We are giving consumers something that no other brand is offering at that price point.”

The success of its strategy is evident based on the fact that nearly 25 percent of its volume growth last year came from the sale of the Watermatic models. What’s more is that Tandon expects to sell 625,000 refrigerator units this year as compared to 415,000 last year, and of these, nearly 40 percent of sales is expected to come from the Watermatic models. Says Mr. Tandon: “While the industry is witnessing a decline in the average price realization per product, our average price realization increased by 11 percent in 2003.” As a result, Videocon emerged as the fastest growing refrigerator brand in 2003, as total sales for the brand grew by 58 percent. “This year we will move up from the number-four position to the number-three position in the refrigerator market,” states Mr. Tandon.

In the washing machines category, Videocon says it has always dominated the semi-automatic segment. With players like LG grabbing a chunk of the fully automatic segment, Videocon has now been successful in creating a segment between the semi-automatic and fully automatic segment. The price differential between the two segments can be as much as Rs 10,000 (approx. $221). Therefore, Videocon launched its Neo washing machine in the Rs 8,000-9,500 (approx. $177-$210) price range, which needs just one mid-cycle attendance by the user. In addition, the company has launched more semi-automatic models in the 6-kilo capacity range. These new products have enabled the company to grow sales by 23 percent in 2003, a year when the market grew by only 3 percent.

The company has also decided to focus on enhancing the aesthetics of its products and is putting a lot of emphasis on design and development. The company has set up research and development laboratories in Tokyo, Seoul, and Shanghai, which work with local companies in these countries to develop designs and source components and tools. “The advantage is that these R&D labs enable Videocon to keep pace with the latest global developments and trends. Besides, we can source relevant components and tools without losing precious time,” says Mr. Sethuraman.

Videocon’s strength has always been that it has met the Indian consumer’s demand for reliable and durable products that are not just functional, but also affordable. Not surprisingly, its product portfolio includes a wide range of product sizes. It is said to be the first company to launch a no-frills, low-cost refrigerator for just Rs 7,000 (approx. $155), targeted at the rural consumer. On the customer service front, the company pioneered the concept of a mobile service center called Videocon on Wheels. The mobile workshops offer door-to-door service to Videocon customers in locations where the company does not have an authorized service center. Its service network includes 85 mobile vans, 410 authorized service centers, and call centers at 30 strategic locations across the country. It also consists of a team of 1,000 service engineers and more than 100 spare-parts dealers.

As for distribution, Videocon has always enjoyed a good rapport with its dealers. A large part of the credit goes to Pradipkumar Dhoot’s one-on-one relationship with his dealers. Says Mr. Tandon: “He is constantly being asked to open outlets by dealers. There was one dealer who even sent the photographs of his son’s bride-to-be for approval from Mr. Dhoot. It’s almost as if dealers consider him to be [a member] of their families.”

Perhaps, these values—which are intrinsically Indian—have helped Videocon to hold its own, despite the invasion of multinational brands into the Indian market. Today, Videocon ranks among the top 50 most-trusted brands in India, according to a brand equity survey done in 2003 by AC Nielsen ORG-MARG for the Economic Times.

Having fine-tuned its product quality, service, and marketing, Videocon now hopes to recapture its leadership position in the domestic market and enter new global markets. Videocon’s long-term goal can easily be found in its company anthem, which is used to motivate employees—”Saare Jahan Se Achcha Videocon Hamara.” This translates to: “Videocon is the best in the whole world.”

 

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