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Stratagem
 
INNER VIEW
The vision is great. But who will achieve it?

Issue Date - 30/04/2012
 
Panasonic has announced its ‘Mission 2018’ plan, which is to become the largest electronics and durables maker in India. But with its revenues still at one-fourth that of LG’s and Samsung’s, and with these two Korean giants both planning to increase their revenues by 250% by 2015-16, will Mission 2018 remain just a great vision document? B&E does a quick recap of the company’s current standing in India



It took Panasonic 40 years to consider India as its number one priority market. But once Ito Shan (as the company’s India head Daizo Ito is lovingly called by colleagues) accepted this in principle, the flurry of action increasing investments into India has been evidence of Panasonic putting their money where their mouth is. Despite the global reverses (Panasonic warned of a record $9.7 billion loss for FY12) and across-the-board job cuts, the company plans to hire almost 6,000 people in next few years in India to keep its ambitious growth plan on track. Also, it has now promoted Manish Sharma to head the lucrative consumer durables division (with Rs.32 billion turnover the particular division accounts for roughly 60% of the company’s overall India revenue of about Rs.55 billion) to add the Indian touch to its operations. But the question remains, now that the Korean giants – Samsung and LG – have already taken the driver’s seat and Panasonic is still languishing at almost one fourth of their India revenue mark, can Panasonic really hope to even close the gap, leave alone focus on becoming #1? Can it actually beat the current czars, who control over 50% of the roughly Rs.380 billion Indian durables market?

Going by the present head-to-head situation, Panasonic, which managed a three-fold growth in its India sales over the last few years, is now aiming to hit the Rs.100 billion mark ($2 billion) by the end of FY 2012-13, whereas the same for Samsung and LG is at Rs.220 billion and Rs.200 billion respectively. At least on paper, the ace Japanese durables maker looks quite confident; firstly for its 100% growth in India sales in the consumer durables industry last year when the whole sector was going through a bad phase in terms of maintaining margins; and secondly for the newer product categories like beauty care and green energy solutions that they are foraying into. The aim as Ito states is to become India’s largest electronics and durables company by 2018, when Panasonic completes 100 years. If one were to purely play on the numbers, it’s no state secret that both LG and Samsung are targeting individual objectives of roughly $10 billion (approximately Rs.500 billion at present conversion) in sales by 2015-16. And with their first-movers advantage, a sharper India focus and better distribution, these two Korean behemoths have a much higher chance of increasing the gap with Panasonic. Moreover, Panasonic is yet to disclose a clear roadmap for how to achieve such huge targets to fulfil its 2018 mission.

It does seem, though, that sunrise sectors like healthcare, security, energy and education are also definitely on the company’s radar. It has many new product offerings in each of these sectors like ECG machines, blood bank refrigerators and diabetes detectors for healthcare, solar cell and rechargeable batteries for the energy segment, CCTV cameras in security, and interactive whiteboards in education sector. But interestingly, this strategy sounds very similar to rival Samsung’s, which on the back of its multi-product strategy, overtook LG in revenues last year. But Panasonic seems to be playing a tad bit too safe – it has refused to even divulge the current clear revenue targets from these segments.

 
Panasonic India’s contribution to the parent entity in Japan stands at about 2% of the global revenue; and the target is to take it to 5% or Rs.250 billion by 2015. Investments are being ramped up. For example, $200 million is being invested in its manufacturing facility at Jhajjar in Haryana, which is expected to roll out a range of products, including air-conditioners and washing machines by November, 2012. At the same time, its Lifestyle R&D facility in Gurgaon will develop future products, energy management and audio-visual products. However, unlike China (Panasonic’s major sourcing hub) where it has roughly 50 factories, currently it has about 5 plants in India and aims to open four more in next few years. The company also aims to export 10% of the products manufactured here to markets in Africa and Middle East.

Nevertheless, following what Manish Sharma says as Panasonic’s India strategy – “localisation, harmonisation and communication” – the company has launched several entry-level mass products to drive volumes, and used brand ambassadors extensively to increase brand appeal. Interesting enough, something seems to be working. The market share of Panasonic products has shot up to an average of 5-6% in this fiscal from 1-2% in last fiscal. Given that, a 10% market share objective by 2012 end and 25% mark by 2018 really does not sound unbelievable anymore. Panasonic has also upped its marketing spend and plans to invest Rs.4.5 billion plus in 2012 for promoting its products in India. This is not a far way off from what market leaders like Samsung & LG plan to spend. While Samsung would be investing Rs.5 billion plus for marketing its products in 2012, LG will cough up a whopping Rs.7 billion (interestingly LG has slashed its ad budget by 15-20%).

Further, according to market experts, consumer durable companies with the widest distribution network have been able to grab higher market share in India. And this is where Panasonic seems to be going great guns. While LG and Samsung each have about 5,000 dealers across India at present, the number for Panasonic is 6,000. In fact, the company is really aggressive on this front and is planning to take this number to 9,000 by the end of this year. Panasonic’s renewed focus on emerging markets like India has also helped it in increasing its brand value globally. For instance, Panasonic has not only climbed four steps up in Interbrands’ “Best Global Brands 2011” list (from 73 in 2010 to 69 in 2011), but its brand value has also gone up by 16% to $5.04 billion in 2011. On the contrary, while LG was nowhere to be seen in the Top 100 list, Samsung sat high at No.17 with a brand value of $23.99 billion. However, when it comes to Best Global Green Brands 2011, it’s only Panasonic that stands tall at No.10. A plus for Panasonic, which as part of its global strategy is now focussing more on green products in India.

Another area where Panasonic is making a management difference is in regulating control and decision making in India. Unlike LG and Samsung, where the top deck is largely controlled by Koreans, Panasonic has a strong Indian frontline leadership. At the same time, in its attempt to offer a wider product portfolio in India, it’s quite clear that Panasonic may be spreading its resources thin, Will that be a critical issue for its revenue target achievement? That’s a question for which MD Manish Sharma will get an answer within this year...

Onkar Pandey           

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