Titan - The Outsourcing Journey

OUTSOURCING AT TITAN

Titan's entry into the clock segment in the mid 1990s failed badly because its clocks could not face the competition from cheaper imports from China. Moreover, the design of Titan's clocks was also found to be faulty.

To correct these problems, the company decided to stop manufacturing clocks, instead it decided to import them from Hong Kong. The only input in this ‘virtual manufacturing^[8] 'setup from Titan's side was in the form of design, branding and distribution. The company converted its clock plant into a plastic watch-manufacturing unit to make alarm and travel watches.

Outsourcing activities were further strengthened in the next few years due to the problems Titan was facing with the gray market. The gray market has always accounted for a substantial part of the Indian watch industry (Refer Table IV).

TABLE IV
THE INDIAN WATCH INDUSTRY IN 2001

Indian watch industry	Organized Sector		Unorganized Sector*
Volume	20 million units		16-18 million units
Value^[9]	Rs 10 billion		Rs 3-5 billion
Segment-wise breakup	Premium	15%	N.A.
	Mid	40%
	Mass	45%

* Estimates.
Source: Business Line, December 6, 2001.

During the early 1990s, when the import duty on watches was reduced to 25% from 50% and import licenses became easier to obtain, as much as 55% of the demand was met by small players from the unorganized sector. Since Titan faced stiff competition from these players on the price, it decided to concentrate on building a strong distribution and support network. This worked well for the company and soon it became the undisputed market leader in the watches market.

However, the variety and range available in the mid segment increased dramatically after 1999, with the changes in the EXIM policy. Though the segment itself grew in size, new entrants began to threaten Titan's market share. The company's management was also aware that outsourcing was the accepted norm in the global watch industry and many leading global watch brands were not manufactured by the companies that owned them.

Kurien said, “We have to think global, not Hosur. Putting up plants and buying equipment is clearly not the answer to competing in the new environment. And as we find suitable vendors for full watches, we will opt for them increasingly.” He added, “In the old days it would have made sense to put in huge investments in new technology because it was a protected market. But that is no longer the case.”

According to analysts, Titan's multibillion investment in manufacturing facilities were proving to be a real drain on its profitability in the changed industry. Moreover, since the company relied heavily on its marketing finesse than operational excellence, these investments were deemed to be too high. Though the company had consistently posted yearly profits, in the first quarter of 1999-00, it reported a loss of Rs 52 million.

TABLE V - TITAN - KEY STATISTICS

THE FUTURE

EXHIBIT I - TITAN - PRODUCT PROFILE

^[8] Virtual Manufacturing refers to the use of computer models and simulations of manufacturing processes to aid in the design and production of manufactured products. It is an integrated, synthetic manufacturing environment exercised to enhance all levels of decision and control.

^[9] In May 2002, financial daily Business Standard's estimates cited the value of the overall Indian watch market at Rs 60 billion.