By 2003, with revenues of around Rs. 160 crores, Pioneer Electronics Ltd. had established itself as a leading local manufacturer of consumer electronics and electrical goods in India. The company used to supply certain parts of TV, refrigerator and air-conditioners to various players in the industry apart from selling finished products directly in the market. With the increasing popularity of the company's products the CEO of the company, Mallesh Sen Gupta (Mallesh) planned to foray into new markets. Pioneer Electronics Ltd. was established in 1977 by Rakesh Sen Gupta (Rakesh), father of present CEO Mallesh. Before, starting his own venture, Rakesh, who was an engineer, worked as technical expert in various organizations. After working in various organizations for considerable time, he decided to start his own venture. Initially, he started a small plant in Pune. He decided upon Pune because it was strategically located. During the initial days Rakesh did not have enough funds. So he took loan of Rs. 25 lakhs from bank, borrowed Rs. 9 lakhs from his father-in-law and put Rs. 12 lakhs on his own. The venture started with an initial capital investment of Rs. 46 lakhs. The company initially concentrated on manufacturing certain parts of electronic goods. However, credit sales increased the fund lock, which had a heavy impact on the company. The company struggled to pay the bank loans. In early 1980s, there was spurt in the number of suppliers. With growing market for electronic items in India, many players entered the market. Most of the buyers of the company had multiple suppliers and the buyers uses to give order to the suppliers who quoted less price. Therefore, in order to get orders, Pioneer Electronics Ltd. was forced to quote lower price than its competitors to get order. This price cut had further eaten away the revenues of the firm. In 1986, Mallesh, after completing his graduation in management, joined Pioneer Electronics Ltd. Mallesh understood the operations of the business very quickly. In one of his strategic discussions with his father, he said, "Time has come for us to bring in certain changes. Further, we need to increase the production level of our factory to avail the benefits of economies of scale.” “I agree with you. But, what about the purchasers. Even if you produce, buyers need to buy our products. So, we need to produce according to the demand existing in the market,” said Rakesh. “There is much more potential for TVs with the advent of cable network. The growth in upper middle class segment will lead to much more market demand in the coming years. To tap this potential we need to expand our production and produce goods at much more cheaper price. Even growing competition in the market is making big players to outsource certain activities like spare parts development etc. So, our buyer count is also going to increase. Still if there is slack in off take of our products, we ourselves will assemble the parts and sell the products. Anyway, we are manufacturing majority of the parts required for TV except picture tubes,” said Mallesh. “But that requires lot of funds. Further for selling goods, we need to have good distribution network,” said Rakesh. “Things will take care of itself with time,” replied Mallesh. In 1988, Pioneer Electronics Ltd. opened a new manufacturing plant in Hyderabad. The company also started cost cutting exercise and organizational restructuring. The company reduced the manpower and decided to leave the relatively low value adding manufacturing processes to suppliers. The entire manufacturing process was streamlined by bringing in much more professionalism in procurement division. Mallesh restructured the materials management division and it resulted in cost reduction. This was possible by controlling the flow of goods from Pioneer Electronics Ltd.’s suppliers. By restructuring its relations with suppliers, the company was able to get quality products from its suppliers at a competitive price. The company started to build a long-term relationship with suppliers by involving the suppliers right from the product planning stage. Each supplier was assessed periodically through company audits. The company created categories of preferred suppliers and supplier partners. All suppliers were also expected to do their own quality testing and the company only conducted random checks. The company even started having tie-ups with various marketing agencies to market its products. In spite of all these measures, the company was not able to generate much profit. In early 1990s, the revenue of the company increased marginally. Though the company did not have a premium brand tag still consumers felt that they were getting value for the money. However, the company's markets were limited to Maharashtra, Andhra Pradesh and Karnataka. In early 1990s, there was an increase in company's revenues. However, from 1995 onwards, there was a drop in sales. Analysts attributed the reduction in revenue to poor after sales service. They found that though the company's products were cheaper when compared with competitors products, still consumers were hesitant to buy as the after sales service was bad. After much analysis, Mallesh found that the consumers include after sales service while ascertaining the value of the product at the time of purchase. Therefore, he started providing training to the sales personnel of the marketing agencies that worked for his company with regard to after sales service, though the company needed to spend heavily for the training. Further, he had an agreement with those agencies to provide after sales service. Mallesh found that the company had diversified into too many businesses, which was affecting the efficiency of the company. Therefore, he dismantled several home appliance products and concentrated more on TVs and air-conditioners. Mallesh realized that with growing business, there was need for significant investment in R&D. So, Pioneer Electronics Ltd. entered into a tie-up with other related companies with regard to supply of product designs. This helped the company significantly as it was able to release new models into the market periodically. By late 1990s, there was rapid growth in revenues. In 2001, the company started its own marketing & service division. However, the company did not discard its existing understanding with marketing agencies. Instead, the company's own marketing & service division will strengthen the existing force of marketing agencies. Mallesh realized that the process of adding value was a continuous process. Therefore, he formed a team, which specifically looks into value addition to the product by identifying various value activities of the products.

1. Mallesh Sen Gupta has given lot of importance to procurement division, control systems and organizational structure and further spent huge amount on training salesforce. Identify the above activities in the context of value chain and how these activities help Pioneer Electronics Ltd. deliver value to the customers? 2. Pioneer Electronics Ltd. entered into tie-ups with different companies with regard to supply of product designs. What are the advantages Pioneer Electronics Ltd. is going to get by having long-term agreement with different companies with regard to supply of product designs? Explain in detail.