Case1: Credit Decision - Agarwal Case
On August 30, 2006, Agarwal Cast Company Inc., applied for a $200,000 loan from the main office
of the National bank of New York. The application was forwarded to the bank's commercial loan
department. Gupta, the President and Principal Stockholder of Agarwal cast, applied for the loan in
person. He told the loan officer that he had been in business since February 1976, but that he had
considerable prior experience in flooring and carpets since he had worked as an individual contractor
for the past 20 year. Most of this time, he had worked in Frankfert and Michigan. He finally decided
to "work for himself" and he formed the company with Berry Hook, a former co-worker. This
information seemed to be consistent with the Dun and Bradstreet report obtained by the bank
According to Gupta, the purpose of the loan was to assist him in carrying his receivables until they
could be collected. He explained that the flooring business required him to spend considerable cash to
purchase materials but his customers would not pay until the job was done. Since he was relatively
new in the business, he did not feel that he could compete if he had to require a sizeable deposit or
payment in advance. Instead, he could quote for higher profits, if he were willing to wait until
completion of the job for payment. To show that his operation was sound, he included a list of
customers and projects with his loan application. He also included a list of current receivables.
Gupta told the loan officer that he had monitored his firm's financial status closely and that he had
financial reports prepared every six months. He said that the would send a copy to the bank. In
addition, he was willing to file a personal financial statement with the bank.
Question:
1. Prepare your recommendation on Agarwal Cast Company
Caselet 2
This case has been framed in order to test the skills in evaluating a credit request and reaching a
correct decision. Perluence International is large manufacturer of petroleum and rubber-based
products used in a variety of commercial applications in the fields of transportation, electronics, and
heavy manufacturing. In the northwestern United States, many of the Perluence products are
marketed by a wholly-owned subsidiary, Bajaj Electronics Company. Operating from a headquarters
and warehouse facility in San Antonio, Strand Electronics has 950 employees and handles a volume
of $85 million in sales annually. About $6 million of the sales represents items manufactured by
Perluence. Gupta is the credit manager at Bajaj electronics. He supervises five employees who handle
credit application and collections on 4,600 accounts. The accounts range in size from $120 to
$85,000. The firm sells on varied terms, with 2/10, net 30 mostly. Sales fluctuate seasonally and the
Examination Paper of Financial Management
IIBM Institute of Business Management 4
average collection period tends to run 40 days. Bad-debt losses are less than 0.6 per cent of sales.
Gupta is evaluating a credit application from Booth Plastics, Inc., a wholesale supply dealer serving
the oil industry. The company was founded in 1977 by Neck A. Booth and has grown steadily since
that time. Bajaj Electronics is not selling any products to Booth Plastics and had no previous contact
with Neck Booth. Bajaj Electronics purchased goods from Perluence International under the same
terms and conditions as Perluence used when it sold to independent customers. Although Bajaj
Electronics generally followed Perluence in setting its prices, the subsidiary operated independently
and could adjust price levels to meet its own marketing strategies. The Perluence's cost-accounting
department estimated a 24 per cent markup as the average for items sold to Pucca Electronics. Bajaj
Electronics, in turn, resold the items to yield a 17 per cent markup. It appeared that these percentages
would hold on any sales to Booth Plastics. Bajaj Electronics incurred out-of pocket expenses that
were not considered in calculating the 17 per cent markup on its items. For example, the contact with
Booth Plastics had been made by James, the salesman who handled the Glaveston area. James would
receive a 3 per cent commission on all sales made Booth Plastics, a commission that would be paid
whether or not the receivable was collected. James would, of course, be willing to assist in collecting
any accounts that he had sold. In addition to the sales commission, the company would incur variable
costs as a result of handling the merchandise for the new account. As a general guideline,
warehousing and other administrative variable costs would run 3 per cent sales. Gupta Holmstead
approached all credit decisions in basically the same manner. First of all, he considered the potential
profit from the account. James had estimated first-year sales to Booth Plastics of $65,000. Assuming
that Neck Booth took the, 3 per cent discount. Bajaj Electronics would realize a 17 per cent markup
on these sales since the average markup was calculated on the basis of the customer taking the
discount. If Neck Booth did not take the discount, the markup would be slightly higher, as would the
cost of financing the receivable for the additional period of time. In addition to the potential profit
from the account, Gupta was concerned about his company's exposure. He knew that weak customers
could become bad debts at any time and therefore, required a vigorous collection effort whenever
their accounts were overdue. His department probably spent three times as much money and effort
managing a marginal account as compared to a strong account. He also figured that overdue and
uncollected funds had to be financed by Bajaj Electronics at a rate of 18 per cent. All in all, slow -
paying or marginal accounts were very costly to Bajaj Electronics. With these considerations in mind,
Gupta began to review the credit application for Booth Plastics.
Questions:
1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth
Plastics and give your views to increase the profit?
2. Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of
credit limit that electronics give to Booth Plastics.
Caselet 3
Uptron Electronics Limited, is a pioneering and internationally reputed firm in the electronics
industry. It is one of the largest firm in the country. It attracted employees from internationallyreputed
institute and industries by offering high salaries, perks, etc. It has advertized for the position
of an electronic engineer recently. Nearly 150 candidates applied for the jobMr. Sashidhar, an
electronics Engineering Graduate from the Indian Institute Of Technology with 5 years working
experience in a medium sized electronics firm, was selected from among the 130 candidates who took
tests and interview. The interview board recommended an enhancement in his salary by Rs 5,000
more than his present salary at his request. Mr Sashidhar was very happy to achieve this and he was
congratulated by a number of people including his previous employer for his brilliant interview
performance, and wished him good luck.
Mr Sashidhar joined Uptyron Electronics Ltd., on 21st January, 2002, with greater enthusiasm. He
also found his job to be quite comfortable and a challenging one and he felt it was prestigious to work
with this company during the formative years of his career. He found his superiors as well as
subordinates to be friendly and cooperative. But this climate did not live long. After one year of his service, he slowly learnt about a number of unpleasant stories about the company, management, the
superior subordinate relations, rate of employee turnover, especially at higher level But he decided to
stay on as he has promised several things to the management in the interview. He wanted to please
and change the attitude of management through his diligent performance, firm commitment and
dedication. He started maximizing his contributions and the management got the impression that Mr.
Sashidhar had settled down and will remain in the company.
After some time, the superiors started riding rough- shod over Mr Sashidhar. He was overloaded with
multifarious jobs. His freedom in deciding and executing was cut down. He was ill treated on a
number of occasions before his subordinates. His colleagues also started assigning their
responsibilities to Mr Sashidhar. Consequently there were imbalances in his family life and
organizational life. But he seemed to be calm and contented. Management felt that Mr Sashidhar had
the potential to bear with many more organizational responsibilities.
So the general manager was quite surprised to see the resignation letter of Mr Sashidhar along with a
cheque equivalent to a month's salary one fine morning on 18th January, 2004. The General Manager
failed to convince Mr Sashidhar to withdraw his resignation. The General Manager relieved him on
25th January, 2004. The General Manager wanted to appoint a committee to go into the matter
immediately, but dropped the idea later.
Questions:
1. What is wrong with the recruitment policy of the company?
2. Why did Mr. Sashidhar's resignation surprise the General Manager?
Caselet 4
The contexts in which human resources are managed in today's organizations are constantly,
changing. No longer do firms utilize one set of manufacturing processes, employ a homogeneous
group of loyal employees for long periods of time or develop one set way of structuring how work is
done and supervisory responsibility is assigned. Continuous changes in who organizations employ
and what these employees do require HR practices and systems that are well conceived and
effectively implemented to ensure high performance and continued success.
1. Automated technologies nowadays require more technically trained employees possessing
multifarious skills to repair, adjust or improve existing processes. The firms can't expect these
employees (Gen X employees, possessing superior technical knowledge and skills, whose attitudes
and perceptions toward work are significantly different from those of their predecessor organizations:
like greater self-control, less interest in job security; no expectations of long term employment;
greater participation urge in work activities, demanding opportunities for personal growth and
creativity) to stay on without attractive compensation packages and novel reward schemes.
2. Technology driven companies are led by project teams, possessing diverse skills, experience and
expertise. Flexible and dynamic organizational structures are needed to take care of the expectations
of managers, technicians and analysts who combine their skills, expertise and experience to meet
changing customer needs and competitive pressures.
3. Cost cutting efforts have led to the decimation of unwanted layers in organizational hierarchy in
recent times. This, in turn, has brought in the problem of managing plateau employees whose careers
seem to have been hit by the delivering process. Organizations are, therefore, made to find alternative
career paths for such employees'
4. Both young and old workers, these days, have values and attitudes that stress less loyalty to the
company and more loyalty to oneself and one's career than those shown by employees in the past,
Organizations, therefore, have to devise appropriate HR policies and strategies so as to prevent the
flight of talented employees
Question:-
1. Discuss that technological breakthrough has brought radical changes in HRM.
Case let 5
The war on drugs is an expensive battle, as a great deal of resources go into catching those who buy or
sell illegal drugs on the black market, prosecuting them in court, and housing them in jail. These costs
seem particularly exorbitant when dealing with the drug marijuana, as it is widely used, and is likely no
more harmful than currently legal drugs such as tobacco and alcohol. There's another cost to the war on
drugs, however, which is the revenue lost by governments who cannot collect taxes on illegal drugs. In a
recent study for the Fraser Institute, Canada, Economist Stephen T. Easton attempted to calculate how
much tax revenue the government of the country could gain by legalizing marijuana. The study estimates
that the average price of 0.5 grams (a unit) of marijuana sold for $8.60 on the street, while its cost of
production was only $1.70. In a free market, a $6.90 profit for a unit of marijuana would not last for
long. Entrepreneurs noticing the great profits to be made in the marijuana market would start their own
grow operations, increasing the supply of marijuana on the street, which would cause the street price of
the drug to fall to a level much closer to the cost of production. Of course, this doesn't happen because
the product is illegal; the prospect of jail time deters many entrepreneurs and the occasional drug bust
ensures that the supply stays relatively low. We can consider much of this $6.90 per unit of marijuana
profit a risk-premium for participating in the underground economy. Unfortunately, this risk premium is
making a lot of criminals, many of whom have ties to organized crime, very wealthy. Stephen T. Easton
argues that if marijuana was legalized, we could transfer these excess profits caused by the risk premium
from these grow operations to the government: If we substitute a tax on marijuana cigarettes equal to the
difference between the local production cost and the street price people currently pay - that is, transfer
the revenue from the current producers and marketers (many of whom work with organized crime) to the
government, leaving all other marketing and transportation issues aside we would have revenue of (say)
$7 per [unit]. If you could collect on every cigarette and ignore the transportation, marketing, and
advertising costs, this comes to over $2 billion on Canadian sales and substantially more from an export
tax, and you forego the costs of enforcement and deploy your policing assets elsewhere. One interesting
thing to note from such a scheme is that the street price of marijuana stays exactly the same, so the
quantity demanded should remain the same as the price is unchanged. However, it's quite likely that the
demand for marijuana would change from legalization. We saw that there was a risk in selling
marijuana, but since drug laws often target both the buyer and the seller, there is also a risk (albeit
smaller) to the consumer interested in buying marijuana. Legalization would eliminate this risk, causing
the demand to rise. This is a mixed bag from a public policy standpoint: Increased marijuana use can
have ill effects on the health of the population but the increased sales bring in more revenue for the
government. However, if legalized, governments can control how much marijuana is consumed by
increasing or decreasing the taxes on the product. There is a limit to this, however, as setting taxes too
high will cause marijuana growers to sell on the black market to avoid excessive taxation. When
considering legalizing marijuana, there are many economic, health, and social issues we must analyze.
One economic study will not be the basis of Canada's public policy decisions, but Easton's research does
conclusively show that there are economic benefits in the legalization of marijuana. With governments
scrambling to find new sources of revenue to pay for important social objectives such as health care and
education expect to see the idea raised in Parliament sooner rather than later.
Questions:
1. Plot the demand schedule and draw the demand curve for the data given for Marijuana in the case
above.
2.On the basis of the analysis of the case above, what is your opinion about legalizing marijuana in Canada?
Case let 6
The Stock Market
The stock market is very close to a perfect competitive market. The price of a stock usually is
determined by the market forces of demand and supply of the stock and individual buyers and sellers of
the stock have little effect on price (they are price-takers). Resources are mobile as stock is bought and
sold frequently. Information about prices and quantities is readily available. Funds flow into stocks and
resources flow into uses in which the rate of return. Thus stock prices provide the signal for efficient
allocation of investment in the economy. However, imperfections occur here also though the stock
market is very close to a perfect competition, for example, sale of huge amount of stocks by a large
corporation will certainly affect (depress) the price of its stocks.
Question
1. Find out the characteristic of National Stock Exchange.
Caselet 7
Ask the company top brass what „almost there? means. The answer: a premier Indian retail company
that has come to be known as a specialty chain of apparel and accessories. With 52 product categories
under one roof, Shoppers? Stop has a line-up of 350 brands. Set up and headed by former Corona
employee, B. S. Nagesh, Shoppers? Stop is India?s answer to Selfridges and Printemps. As it proudly
announces, „We don?t sell, we help you buy.? Back in 1991, there was the question of what to retail.
Should it be a supermarket or a departmental store? Even an electronics store was considered. Finally,
common sense and understanding won out. The safest bet, for the all-male team was to retail men?s
wear. They knew the male psyche and felt that they had discerning taste in men?s clothing. The
concept would be that of a lifestyle store in a luxurious space, which would make for a great shopping
experience. The first Shoppers? Stop store took shape in Andheri, Mumbai, in October 1991, with an
investment of nearly Rs. 20 lakh. The original concept that formed the basis of a successful marketing
campaign for seven years is here to stay. And the result is an annual turnover of Rs. 160 crores and
five stores, nine years later. Everything went right from the beginning, except for one strange
happening. More than 60 per cent of the customers who walked into Shoppers? Stop in Mumbai were
women. This gave rise to ideas. Soon, the store set up its women?s section. Later, it expanded to
include children?s wear and then, household accessories. The second store in Bangalore came in
1995. The store at Hyderabad followed in 1998 with the largest area of 60,000 sq. ft. The New Delhi
and Jaipur stores were inaugurated in 1999. All this while, the product range kept increasing to suit
customer needs. The most recent experiment was home furnishings. Secure in the knowledge that
organized retailing in global brands was still in its infancy in India, Shoppers? Stop laid the ground
rules which the competition followed. The biggest advantage for Shoppers? Stop is that it knows how
the Indian consumer thinks and feels while shopping. Yes, feeling - for in India, shopping remains an
outing. And how does it compare itself to foreign stores? While it is not modeled on any one foreign
retailer, the „basic construct? is taken from the experience of a number of successfully managed retail
companies. It has leveraged expertise for a critical component like technology from all over the
world, going as far as hiring expatriates from Littlewoods and using state-of-the-art ERP models.
Shoppers? Stop went a step further by even integrating its financial system with the ERP model.
Expertise was imported wherever it felt that expertise available in-house was inadequate. But the
store felt there was one acute problem. A shortage of the most important resource of them all was
trained humans. Since Indian business institutes did not have professional courses in retail
management, people were hired from different walks of life and the training programme was
internalized. By 1994, the senior executives at Shoppers? Stop were taking lectures at management
institutes in Mumbai. The Narsee Monjee Institute of Management Studies (NMIMS) even
restructured its course to include retail management as a subject. Getting the company access to the
latest global retail trends and exchange of information with business greats was an exclusive
membership to the Intercontinental Group of Department Stores (IGDS). It allows membership by
invitation to one company from a country and Shoppers? Stop rubs shoulders with 29 of the hottest
names in retailing - Selfridges from the UK, C.K. Tang from Singapore, Lamcy Plaza from Dubai
and the like. With logistics I in place, the accent moved to the customer. Shoppers? Stop conducted
surveys with ORG-MARG and Indian Market Research Bureau (IMRB) and undertook in-house
wardrobe audits. The studies confirmed what it already knew. The Indian customer is still evolving
and is very different from, say, a European customer, who knows exactly what he wants to purchase,
walks up to a shelf, picks up the merchandise, pays and walks out. In India, customers like to touch
and feel the merchandise, and scout for options. Also, the majority of Indian shoppers still prefer to
pay in cash. So, transactions must be in cash as against plastic money used the world over.
Additionally, the Indian customer likes being served - whether it is food, or otherwise. The
company?s customer profile includes people who want the same salesperson each time they came to
the store to walk them through the shop floors and assist in the purchase. Others came with families,
kids and maids in tow and expected to be suitably attended to. Still others wanted someone to carry
the bags. So, the shops have self-help counters, with an assistant at hand for queries or help. The inhouse
wardrobe audit also helped with another facet of the business. It enabled Shoppers? Stop to
work out which brands to stock, based on customer preferences. In fact, the USP of Shoppers? Stop
lies in judiciously selected global brands, displayed alongside an in-house range of affordable
designer wear. The line-up includes Levi?s, Louis Philippe, Allen Solly, Walt Disney, Ray Ban and
Reebok, besides in-house labels STOP and I. Brand selection is the same across the five locations,
though the product mix may be somewhat city-based to accommodate cuts and styles in women?s
wear, as well as allowing for seasonal variations (winter in Delhi, for instance, is a case in point).
Stocking of brands is based on popular demand - recently, Provogue, MTV Style, and Benetton have
been added. In-house labels are available at competitive prices and target the value-for-money
customer and make up around 12 per cent of Shoppers? Stop?s business. Sometimes in-house brands
plug the price gap in certain product categories. To cash in on this, the company has big plans for its
in-house brands: from re-branding to repositioning, to homing in on product categories where existing
brands are not strong. Competition between brands is not an issue, because being a trading house, all
brands get equal emphasis. The in-house brand shopper is one who places immense trust in the
company and the quality of its goods and returns for repeat buys. And the company reposed its faith
in regular customers by including them in a concept called the First Citizen?s Club (FCC). With
60,000 odd members, FCC customers account for 10 per cent of entries and for 34 per cent of the
turnover. It was the sheer appeal of the experience that kept pulling these people back. Not one to let
such an opportunity pass, the company ran a successful ad campaign (that talks about just this factor)
in print for more than eight years. The theme is still the same. In 1999, a TV spot, which liked the
shopping experience to the slowing down of one?s internal clock and the beauty of the whole
experience, was aired. More recently, ads that spell out the store?s benefits (in a highly oblique
manner) are being aired.
The campaign is based on entries entered in the Visitors? Book. None of the ads has a visual or text -
or any heavy handedly direct reference to the store or the merchandise. The ads only show shoppers
having the time of their lives in calm and serene locales, or elements that make shopping at the store a
pleasure - quite the perfect getaway for a cosmopolitan shopper aged between 25 and 45. The brief to
the agency, Contract, ensured that brand recall came in terms of the shopping experience, not the
product. And it has worked wonders. Value-addition at each store also comes in the form of special
care with car parks, power backup, customer paging, alteration service and gift-wrapping. To top it
all, cafes and coffee bars make sure that the customer does not step out of the store. In Hyderabad, it
has even created a Food Court. Although the food counter was not planned, it came about as there
was extra space of 67,000 sq. ft. Carrying the perfect experience to the shop floor is an attempt to
stack goods in vast open spaces neatly. Every store has a generic structure, though regional customer
variances are accounted for. Each store is on lease, and this is clearly Shoppers? Stop?s most
expensive resource proposition - renting huge spaces in prime properties across metros, so far
totaling 210,000 sq. ft of retail space. Getting that space was easy enough for Shoppers? Stop, since
its promoter is the Mumbai-based Raheja Group, which also owns 62 per cent of the share capital.
Questions:
1. What are the significant factors that have led to the success of Shoppers? Stop?
2. How should Shoppers? Stop develop its demand forcasts?.
Caselet 8
The rise of personal computers in the mid 1980s spurred interest in computer games. This caused a
crash in home Video game market. Interest in Video games was rekindled when a number of different
companies developed hardware consoles that provided graphics superior to the capabilities of
computer games. By 1990, the Nintendo Entertainment System dominated the product category. Sega
surpassed Nintendo when it introduced its Genesis System. By 1993, Sega commanded almost 60 per
cent of Video game market and was one of the most recognized brand names among the children.
Sega?s success was short lived. In 1995, Saturn (a division of General Motors) launched a new 32-bit
system. The product was a miserable failure for a number of reasons. Sega was the primary software
developer for Saturn and it did not support efforts by outside game developers to design compatible
games. In addition, Sega?s games were often delivered quite late to retailers. Finally, the price of the
Saturn system was greater than other comparable game consoles. This situation of Saturn?s misstep
benefited Nintendo and Sony greatly. Sony?s Play Station was unveiled in 1994 and was available in
70 million homes worldwide by the end of 1999. Its "Open design" encouraged the efforts of outside
developers, resulting in almost 3,000 different games that were compatible with the PlayStation. It too
featured 32-bit graphics that appealed to older audience. As a result, at one time, more than 30 per
cent of PlayStation owners were over 30 years old. Nintendo 64 was introduced in 1996 and had eyepopping
64-bit graphics and entered in more than 28 million homes by 1999. Its primary users were
between the age of 6 and 13 as a result of Nintendo?s efforts to limit the amount of violent and adultoriented
material featured on games that can be played on its systems. Because the company
exercised considerable control over software development, Nintendo 64 had only one-tenth the
number of compatible games as Sony?s PlayStation did. By 1999, Sony had captured 56 per cent of
the video game market, followed by Nintendo with 42 per cent. Sega?s share had fallen to a low of
1%. Hence, Sega had two options, either to concede defeat or introduce an innovative video machine
that would bring in huge sales. And Sega had to do so before either Nintendo or Sony could bring
their next-generation console to market. The Sega Dreamcast arrived in stores in September 1999
with an initial price tag of $199. Anxious gamers placed 300,000 advance orders, and initial sales
were quite encouraging. A total of 1.5 million Dreamcast machines were bought within the first four
months, and initial reviews were positive. The 128-bit system was capable of generating 3-D visuals,
and 40 different games were available within three months of Dream cast?s introduction. By the end
of the year, Sega had captured a market share to 15 per cent. But the Dreamcast could not sustain its
momentum. Although its game capabilities were impressive, the system did not deliver all the
functionality Sega had promised. A 56K modem (which used a home phone line) and a Web browser
were meant to allow access to the Internet so that gamers could play each other online, surf the Web,
and visit the Dreamcast Network for product information and playing tips. Unfortunately, these
features either were not immediately available or were disappointing in their execution. Sega was not
the only one in having the strategy of adding functionality beyond games. Sony and Nintendo
followed the same approach for their machines introduced in 1999. Both Nintendo?s Neptune and
Sony?s PlayStation 2 (PS2) were built on a DVD platform and featured a 128-bit processor. Analysts
applauded the move to DVD because it is less expensive to produce and allows more storage than
CDs. It also gives buyers the ability to use the machine as CD music player and DVD movie player.
As Sony marketing director commented, "The full entertainment offering from Play Station 2
definitely appeals to a much broader audience. I have friends in their 30s who bought it not only
because it?s a gaming system for their kids, but also a DVD for them." In addition, PlayStation 2 is
able to play games developed for its earlier model that was CD-based. This gives the PS2 an
enormous advantage in the number of compatible game titles that were immediately available to
gamers. Further enhancing the PS2?s appeal is its high-speed modem and allows the user?s easy
access to the Internet through digital cable as well as over telephone lines. This gives Sony the ability
to distribute movies, music, and games directly to PS2 consoles. "We are positioning this as an allround
entertainment player," commented Ken Kutaragi, the head of Sony Computer Entertainment.
However, some prospective customers were put off by the console?s initial price of $360. Shortly
after the introduction of Neptune, Nintendo changed its strategies and announced the impending
release of its newest game console, The GameCube. However, unlike the Neptune, the GameCube
would not run on a DVD platform and also would not initially offer any online capabilities. It would
be more attractively priced at $199. A marketing vice president for Nintendo explained the
company?s change in direction, "We are the only competitor whose business is video games. We want
to create the best gaming system." Nintendo also made the GameCube friendly for outside developers
and started adding games that included sports titles to attract an older audience. Best known for its
extra ordinary successes with games aimed at the younger set, such as Donkey Kong, Super Mario
Bros, and Pokemon, Nintendo sought to attract older users, especially because the average video
game player is 28. Youthful Nintendo users were particularly pleased to hear that they could use their
handheld Game Boy Advance systems as controllers for the GameCube. Nintendo scrambled to
ensure there would be an adequate supply of Game Cubes on the date in November 2001, when they
were scheduled to be available to customers. It also budgeted $450 million to market its new product,
as it anticipated stiff competition during the holiday shopping season. With more than 20 million
PlayStation 2 sold worldwide, the GameCube as a new entry in the video game market would make
the battle for market share even more intense. For almost a decade, the video game industry had only
Sega, Nintendo, and Sony; just three players. Because of strong brand loyalty and high product
development costs, newcomers faced a daunting task in entering this race and being competitive. In
November 2001, Microsoft began selling its new Xbox, just three days before the GameCube made
its debut. Some observers felt the Xbox was aimed to rival PlayStation 2, which has similar functions
that rival Microsoft?s Web TV system and even some lower level PCs. Like the Sony?s PlayStation 2,
Xbox was also built using a DVD platform, but it used an Intel processor in its construction. This
open design allowed Microsoft to develop the Xbox in just two years, and gave developers the option
of using standard PC tool for creating compatible games. In addition, Microsoft also sought the
advice of successful game developers and even incorporated some of their feedback into the design of
the console and its controllers. As a result of developers? efforts, Microsoft had about 20 games ready
when the Xbox became available. By contrast, the GameCube had only eight games available.
Microsoft online strategy was another feature that differentiated of the Xbox from the GameCube.
Whereas Nintendo had no immediate plans for Web-based play, the Xbox came equipped with an
Ethernet port for broadband access to Internet. Microsoft also announced its own Web-based network
on which gamers can come together for online head-to head play and for organized online matches
and tournaments. Subscribers to this service were to pay a small monthly fee and must have highspeed
access to the Internet. This is a potential drawback considering that a very low percentage of
households world over currently have broadband connections. By contrast Sony promoted an open
network, which allows software developers to manage their own games, including associated fees
charged to users. However, interested players must purchase a network adapter for an additional
$39.99. Although game companies are not keen on the prospect of submitting to the control of a
Microsoft-controlled network, it would require a significant investment for them to manage their own
service on the Sony-based network. Initially the price of Microsoft?s Xbox was $299. Prior to the
introduction of Xbox, in a competitive move Sony dropped the price of the PlayStation 2 to $299.
Nintendo?s GameCube already enjoyed a significant price advantage, as it was selling for $100 less
than either Microsoft or Sony products. Gamers eagerly snapped up the new consoles and made 2001
the best year ever for video game sales. For the first time, consumers spent $9.4 billion on video
game equipment, which was more than they did at the box office. By the end of 2001 holiday season,
6.6 million PlayStation 2 consoles had been sold in North America alone, followed by 1.5 million
Xbox units and 1.2 million Game Cubes. What ensued was an all out price war. This started when
Sony decided to put even more pressure on the Microsoft?s Xbox by cutting the PlayStation 2 price to
$199. Microsoft quickly matched that price.
Wanting to maintain its low-price status, Nintendo in turn responded by reducing the price of its the
GameCube by $50, to $149. By mid 2002, Microsoft Xbox had sold between 3.5 and 4 million units
worldwide. However, Nintendo had surpassed Xbox sales by selling 4.5 million Game Cubes. Sony
had the benefit of healthy head start, and had shipped 32 million PlayStation 2s. However, seven
years after the introduction of original PlayStation, it was being sold in retail outlets for a mere $49. It
had a significant lead in terms of numbers of units in homes around the world with a 43 per cent
share. Nintendo 64 was second with 30 per cent, followed by Sony PlayStation 2 with 14 per cent.
The Xbox and GameCube each claimed about 3 per cent of the market, with Sega Dreamcast
comprising the last and least market share of 4.7 per cent. Sega, once an industry leader, announced in
2001 that it had decided to stop producing the Dreamcast and other video game hardware
components. The company said it would develop games for its competitors? consoles. Thus Sega
slashed the price of the Dreamcast to just $99 in an effort to liquidate its piled up inventory of more
than 2 million units and immediately began developing 11 new games for the Xbox, four for
PlayStation 2, and three for Nintendo?s Game Boy Advance. As the prices of video game consoles
have dropped, consoles and games have become the equivalent of razors and blades. This means the
consoles generate little if any profit, but the games are a highly profitable proposition. The profit
margins on games are highly attractive, affected to some degree by whether the content is developed
by the console maker (such as Sony) or by an independent game publisher (such as Electronic Arts).
Thus, the competition to develop appealing, or perhaps even addictive, games may be even more
intense than the battle among players to produce the best console. In particular, Nintendo, Sony, and
Microsoft want games that are exclusive to their own systems. With that in mind, they not only rely
on large in-house staffs that design games but they also pay added fees to independent publishers for
exclusive rights to new games. The sales of video games in 2001 rose to 43 per cent, compared to just
4 per cent increase for computer-based games. But computer game players are believed to be a loyal
bunch, as they see many advantages in playing games on their computers rather than consoles. For
one thing, they have a big advantage of having access to a mouse and a keyboard that allow them to
play far more sophisticated games. In addition, they have been utilizing the Internet for years to
receive game updates and modifications and to play each other over the Web. Sony and Microsoft are
intent on capturing a portion of the online gaming opportunity. Even Nintendo has decided to make
available a modem that will allow GameCube users to play online. As prices continue to fall and
technology becomes increasingly more sophisticated, it remains to be seen whether these three
companies can keep their names on the industry?s list of "high scorers".
Questions:
1. Considering the concept of product life cycle, where would you put video games in their life cycle?
2. Should video game companies continue to alter their products to include other functions, such as
Email?.
Caselet 9
M/s. ABC Ltd is a medium-sized engineering company producing a large-range of product lines
according to customer requirements. It has earned a good reputation as a quick and reliable supplier to
its customers because of which its volume of business kept on increasing. However, over the past one
year, the Managing Director of the company has been receiving customer complaints due to delays in
dispatch of products and at times the company has to pay substantial penalty for not meeting the
schedule in time. The Managing Director convened an urgent meeting of various functional managers
to discuss the issue. The marketing manager questioned the arbitrary manner of giving priority to
products in manufacturing line, causing delays in wanted products and over-stocking of products
which are not required immediately. Production Control Manager complained that he does not have
adequate staff to plan and control the production function; and whatever little planning he does, is
generally overlooked by shop floor manager. Shop floor managers complained of unrealistic
planning, excessive machine breakdowns, power failure, and shortage of materials for scheduled
products because of which it is impossible to stick to the schedule. Maintenance manager says that he
does not get important spares required for equipment maintenance because of which he cannot repair
machines at a faster rate. Inventory control manager says that on one hand the company often accuses
him of carrying too much stock and on other hand people are grumbling over shortages. Fed up by
mutual mud-slinging, the Managing Director decided to appoint you, a bright management consultant
with training in business management to suggest ways and means to put his "house in order".
Questions:-
1. What would you suggest to avoid delays in dispatch of products?
2. What action should be taken by various functional managers to meet the scheduled dates?
Caselet 10
Rajender Kumar was a production worker at competent Motors Limited (CML) which made
components and accessories for the automotive industry. He had worked at CML for almost seven
years as a welder, along with fifteen other men in the plant. All had received training in welding both
on the job and through company sponsored external programmes. They had friendly relations and got
along very well with one another. They played Volleyball in the playground regularly before retiring
to the quarters allotted by the company. They work together in the company canteen, cutting Jokes on
each other and making fun of everyone who dared to step into their privacy during lunch hour. Most
of the fellows had been there for some length of time, except for two men who had joined the ranks
only two months back. Rajender was generally considered to be the leader of the group, so it was no
surprise that when the foreman of the new was transferred and his job was posted, Rajender applied
for the job and got it.
There were only four other applicants for the job, two from mechanical section and two from outside,
when there was a formal announcement of the appointment on a Friday afternoon, everyone in the
group congratulated Rajender. They literally carried him on their shoulders, and bought him snacks
and celebrated. On Monday morning, Rajender joined duty as Foreman. It was company practice for
all foremen to wear blue jacket and a white shirt. Each man?s coat had his name badge sewn onto the
left side pocket. The company had given two pairs to Rajender. He was proud to wear the coat to
work on Monday. People who saw him from a distance went up to him and admired the new blue
coat. There was a lot of kidding around calling Rajender as „Hero?, „Raja Babu? and „Officer? etc.
One of the guys went back to his locker and returned with a long brush and acted as though he were
removing dust particles on the new coat. After about five minutes of horseplay, all the men went back
to work. Rajender went to his office to familiarize himself with the new job and environment. At
noon, all the men broke for Lunch and went to the canteen to eat and take a break as usual. Rajender
was busy when they left but followed after them a few minutes later. He bought the food coupon,
took the snacks and tea and turned to face the open canteen. On the left-side corner of the room was
his old work group; on the right-hand side of the canteen sat the other entire foreman in the plant-all
in their smart blue coats.
At that point of time, silence descended on the canteen. Both groups looked at Rajender anxiously,
waiting to see which group he would choose to eat with.
Questions:
1. Whom do you think Rajender will eat with? Why?
2. If you were one of the other foremen, what could you do to make Rajinder?s transition easier?