Eicher prefers a safe, sound—and silent strategy

This company has a track record of doing the seemingly impossible in a quiet and focused manner—its announcement about a game-changing JV with Volvo is one such instance

That Eicher Motors Ltd is once again on a winning streak was best reflected in the way its share prices went up by almost 16% in one day. Historically, this company has a track record of doing the seemingly impossible in a quiet and focused manner, and the recent announcement wherein its joint venture with Volvo is now going to be the global hub for complete manufacture and assembly of truck engines in the 4-8 litre size segment (known as ‘medium’ in the developed countries and ‘large’ in developing countries) was no different. None of the usual song and dance lately associated with any announcement in the automobile world, just a straight forward press conference without alcohol, simply a lot of numbers. So very Swedish, dry, though Peter Karlsten, president of Volvo Powertrain did try to make a joke, which nobody understood.
Also present on stage were Siddhartha Lal, managing director & CEO of VE Commercial vehicles, him of the carefully tousled hair and successful track record especially on motorcycles, and Par Ostberg, president, Trucks Asia, Volvo group, and chairman, VE Commercial vehicles—certainly was surprised with the way Asia moved from 7% to 25% of Volvo's global market share. Everybody looked very happy indeed at the announcements, which briefly go like this:- an investment of about Rs3,000 million, an additional production of around 85,000 engines annually for European and Japanese markets in addition to India, Far East and other countries, and everything good for the still distant Euro-6 emission norms.
These engines promise to be state-of-the-art and shall go into Volvo vehicles worldwide, as well as in some Eicher VE ones in India, too. Engine life between overhauls is estimated to be around (or more than) one million kilometres. All future low-sulphur diesel requirements will be met. In short, end-to-end manufacture of state-of-the-art engines as well as associated power train elements is now to be done in India, something that was impossible to even dream of a decade or so ago when Volvo Trucks first entered India. There was also some unconfirmed talk on gear-box, hybrids and electronics—but these are cards which they seem to be holding close to their chests.
Consider this for a company that made the first totally indigenous tractor in India way back in 1960, took over its German principals in a day and age when such things were unheard of, walked out of its Faridabad factory into the then remote Pithampur in MP when local Haryana politics in the '80s made extremely unreasonable demands, overshadowed its Japanese collaborators when Light Commercial Vehicles were introduced into India in the late 80s, bought over a literally gasping Royal Enfield and turned it around into a global icon . . . the list goes on, to more recently, when they moved into a joint venture with global heavy vehicle leaders, Volvo, in what has come to be known as the benchmark for such collaborative efforts.
Is this exciting news from the motoring point of view? Consider this—the engines inside these trucks and buses can do what none of the supercars can do—they can turn the economy around. And this will also force the other heavy vehicle manufacturers into raising the stakes—for the benefit of all concerned.
At the beginning of this essay, your correspondent made a comment about a "lot of numbers". In truth, one major emotion was left out of that opening gambit—and that was this—it felt good to see how an Indian company in core automotive technology was now at the forefront and within the heart of heavy vehicle engineering. Worldwide.


Reckitt Benckiser changes rules of advertising game

Reckitt Benckiser wants advertising agencies to pay for the privilege of making a pitch. Will the agencies fall in line?

The Advertising Agencies Association of India (AAAI) recently reacted to the outrage among advertising agencies over Reckitt Benckiser (India) Limited trying to change the rules of the business to make agencies more accountable.

Reckitt Benckiser, a multinational household and personal care products company with big-budget brands such as Cherry Blossom, Dettol, Harpic, Clearsil, Lizol, Mortein, Strepsils, Vanish, Veet, etc, had called for a fresh pitch for its business from advertising agencies, but with a big catch.

It wanted agencies to pay for the privilege of making a pitch. According to Exchange4Media.com, which tracks the advertising business very closely, this amount may have been as high as Rs3 lakh-Rs4 lakh. The irony of this demand is that it has come at a time when the industry is debating aloud whether it ought to charge clients for making a pitch, because they are giving away creative ideas for free. In fact, Raj Nayak, formerly of NDTV Media, had raised this question while moderating an industry seminar earlier this month.

The immediate reaction to its move was howls of protest. Some called it ridiculous, others wanted agencies to "unite and fight" the move. Some said that it will only lead to cost-cutting without improved efficiency, and so on. At the same time, nobody is willing to bet on who will blink first. After all, Reckitt has one of the biggest advertising budgets in the country and spends as much as 14% of total turnover on advertising.  Dettol, its flagship brand, alone fetches Rs1,000 crore and accounts for 25% of the company's turnover. Significantly, competition in all its product categories is intense and Reckitt is working hard to contain cost pressures and increase sales through innovation such as smaller unit prices instead of cost cuts. Obviously, in Reckitt's case, the large advertising budget is bound to be one of the many big-ticket items that would be under management scrutiny for possible cost-cutting or wringing out more value.

Clearly, clients are in the driver's seat and both media and advertising will end up falling in line. So, while AAAI may have advised agencies not to pitch for the Reckitt Benckiser business, not everybody agrees with its stance. The blunt speaking Meenakshi Madhvani, founder and managing partner of Spatial Access Private Limited, says, "Smart clients have realised that agencies make huge incomes from media owners in the form of volume discounts and rebates.

The valid point is-why should the advertiser pay if the media is paying extra commissions? Therefore, in my view, hats off to Reckitt. They have brought into the open an issue that agencies and advertisers together shy away from acknowledging." Ms Madhvani should know-her firm specialises in helping companies evaluate their media investments and get more bang for their marketing and advertising buck.

Interestingly, behind the public outrage at advertising summits and on blogs, Reckitt Benckiser's strategy is not without supporters. One insider says, "Frankly, if agencies can expect a bonus for over-deliveries of targets, then surely the clients should seek a compensation for under-delivery on promises?"

So, what exactly had Reckitt Benckiser asked for? Apparently, the company is not talking. But Exchange4Media reports that it wants commitment rates (per rating point). For the first 12 months, it wants the agency to pay Reckitt Benckiser a commission, because association with it would increase volumes significantly.

Advertising stalwarts wryly admit that competition is so intense that some agency is bound to find it worthwhile to agree to Reckitt's terms. And then, it is only a matter of time before all major advertisers in the auto, durable, personal care and food space demand similar terms.

When asked, Archna Vyas, media relations executive of Reckitt Benckiser, said, "We are aware of the questions raised and believe that they are ill-conceived and the fears are incorrect."


Inflation in double digits, at 10.16% in May

The double-digit inflation rate may put the RBI in a spot as it would like to tighten money supply to tame rising prices, but liquidity in the system is too tight due to payments towards spectrum for 3G mobile services and broadband wireless access

Inflation hit double digits as it rose to 10.16% in May from 9.59% in April due to elevated food prices and certain manufactured items like metals turning expensive, reports PTI.

In fact, inflation for March was also revised upwards to 11.04% from 9.9% estimated earlier.

The double digit inflation in May was partly attributed to low base of 1.38% a year ago. However, inflation is clearly spreading to manufactured items. Food inflation remained at enhanced level of 16.49% despite moderation from 16.87% in the previous month.

Among manufactured items, wood products prices rose by 8.8% due to higher rates of plywood commercial planks.

Metal prices on an average rose by 3.4%. Within this category, prices of stainless steel rose by 26% and that of steel sheets, plates and strips by 14%.

Among primary (raw) food items, tea turned costlier by 21%, urad by 5% and moong by 3%.

The double digit inflation may put the Reserve Bank of India (RBI) in a spot as it would like to tighten money supply to tame rising prices, but liquidity in the system is too tight due to payments towards spectrum for third generation (3G) mobile services and broadband wireless access (BWA).


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