Countering the rising marketing vulnerability


One of the major challenges brought forth by the reforms relates to vulnerability-corporate and marketing vulnerability. Most Indian firms have been vulnerable all along with liberalization. This is now becoming more and more evident with some of the companies not equipped to deal with competition.

Vulnerability is essentially a proneness to attack on account of some inherent weakness. It can be held under check, if the firm has in its fold some competitive advantage. Unfortunately, most Indian firms do not have any major competitive advantage that can reduce their vulnerability.

A Variety of Factors Lead to Vulnerability

The vulnerability arises on account of several factors. For some firms, it has come up due to their capital inadequacy. Many have become vulnerable due to lack of technology clout and lack of product/brand power. In fact, many players were relying on a single product. No wonder they became vulnerable. For some others, the cause was the loss of protected markets, which amounted to the loss of a monopoly. If we consider the Public Sector Units (PSU) as a group, they became vulnerable on account of a number of special factors acting in concert. Not ready for competitive marketing was one main factor with these units as the working strategy involves a lot of government interference.

PSU Become Vulnerable due to Many Factors

The PSU as a class became particularly vulnerable in the new regime. They had their inherent weakness as PSU and the unfavorable turn of events arising from the reforms worsened their plight. The PSU had never been run as commercial organizations. In the open regime, they were required all on a sudden to operate as commercial organizations. The reforms brought with them a whole bunch of new problems for the PSU. The new, vibrant competition bewildered them totally. They also had to face a drastic change in government’s approach towards them. They had to go through a painful restructure involving difficult steps like identification of new businesses, finding new ways of resource mobilization and massive voluntary retirement scheme (VRS). Budgetary support from the government was no longer available to them, they were now compelled to go to the capital market and raise the funds needed by them in competition with the private sector firms.

The PSU have suddenly been pushed into unfamiliar waters. They have not been given even the benefit of a phased preparation that would have enabled them to face the new ordeal. They now have suddenly wage a battle with the more flexible firms in the private sector, Indian and transnational. Disinvestment of a part of the government’s equity is another new headache for the PSU. It means a major uncertainty to them. They are not sure if the disinvestment will actually lead to their privatization. They are unsure about their future structure and loss of monopoly has been the worst disaster for many of the PSU.

Vulnerability due to Loss of Monopoly

In the case of a number of firms, mostly public sector ones, the loss of monopoly has rendered them vulnerable. State trading agencies and petroleum companies are high on the list of firms affected in this manner.

Example of MMTC & STC

With the de-canalization of imports of several items and the end of monopoly trading, state trading agencies like MMTC and STC have been adversely affected. Commodities were de-canalized one after the other. A huge assured business has been snatched away from them. This has caused a veritable havoc to the fortunes of these companies. Their very survival was at stake. The loss of business has been to the tune of Rs. 1,350crore in the case of STC and Rs. 4000crore in the case of MMTC. The companies have had to undergo a thorough restructuring and enter new businesses.

MMTC responded by pruning its metal imports division and closing down its export trade division. It lined up an elaborate restructuring plan which includes joint ventures in engineering and textiles.

STC also finalized diversification plans, which includes activities such as export of grain and apparel. It also tried to export the products of small business firms under STC brand names. It also sought new business through offshore trading and non-canalized imports. Another activity it turned to was setting up of warehouses in domestic and foreign markets. STC also launched a massive effort to retrain its personnel and used the voluntary retirement scheme for hiving off 800 employees at one go, saving Rs. 10crore on staff on staff overheads.

IOC, HPCL, and CRL: The petroleum companies too suffered in the new regime due to loss of monopoly is some products. In kerosene for example, with the entry of the private firms, HPCL, which was till now the sole domestic producer and IOC, the sole importer suddenly, lost a good part of their business. Similarly in the benzene business, for years public sector refineries like CRL and HPCL have been the main domestic producers and IOC, the sole importer. All benzene users were totally dependent on these three companies. With the de-canalization of import of benzene, several users turned directly to international suppliers, bypassing these companies. Now, these companies had to market the product in a non-monopoly environment.

Private sector managed to survive and even take advantage of post liberalization. Some units of PSU had to shut down totally and some survived by mergers and diversification. Whether private or PSU, competition due to market forces is keeping everybody on toes. It is indirectly benefiting the customer or consumer by getting top quality of goods at reasonable prices. Vulnerability still lurks for non performers.