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40 Years Ago and Now...Voltas emerges as MNC challenger

40 Years Ago and Now...Voltas emerges as MNC challenger

From a juggernaut of Licence-Raj days it transforms itself into a focused player

Abhineet Kumar | Buisness Standard , Mumbai
January 7, 2015

Voltas is today best recalled for its room air conditioners (RAC) with giving the toughest fight to multinational companies (MNCs) in a consumer durable category.

But it is pretty diversified with manufacturing and marketing cooling appliances and industrial equipment besides executing engineering projects. These operations remain company's core since its inception in 1954 when Swedish Volkart Brothers (VOL) found a joint venture with Tata Sons (TAS). But the Swedish partner soon left the company and it became a fully owned Tata Group firm.

Forty years ago the company was into diversification mode as the restriction of License-Raj did not allow it to ramp up its production of core businesses beyond the permitted limit. Hence to seek growth the company got into a plethora of new businesses. This included manufacturing and marketing consumers products, foods and beverages, agro chemicals, molded furniture and various industrial equipment.

In the consumer durable business while the company had window ac as a part of the core portfolio since its inception, it diversified with launching refrigerators under brand "Opal" in 1970. It also acquired Hyderabad Allwyn in 1993 with which it doubled it refrigerator making capacity to 500,000 units. The company had a pretty good run with the diversification of it businesses in those days. Since there was a government restriction on production, there was no urge for companies to innovate and expand market.

But the world changed for Voltas when the government allowed MNCs under its liberalisation initiative and its impact started coming in mid 90s. That meant competition with global giants of deep pockets. The company first saw an opportunity in this as it started making washing machines in a collaboration with Samsung in 1994. It also got into contract manufacturing of refrigerators for LG in 1997. In a couple of years the business was thriving.

Later in 2000 the company divested its white goods business to a jv with Swedish giant Electrolux. The company transferred its Voltas brand refrigerators and washing machines to this joint venture and then transferred the products of Allwyn brand to this JV. But this was not really the long term strategy that could have supported company's growth potential as the MNCs started setting up their own manufacturing units. Besides, the company had started losing on its core of room air conditioner business. This is when the company decided to get back to the core and do away with the diversification. Soon it exited the refrigerator and washing machine businesses.

Room Air conditioning market was also not easy. First American giant Carrier entered India in 1993 followed with Korean durable giants LG and Samsung and then Japanese conglomerate Hitachi. They launched various new products in the market and Voltas was pushed out of the top 5 position as per market share. The company eventually saw profitability shrinking and that led to senior management exodus during 2006-07.

"It was a do or die situation for us," remembers Pradeep Bakshi, president and chief operating officer at Voltas who was a part of a new team entrusted to turn around the company. "Obviously something drastically different was needed which could address a clear consumer need that other brands were ignoring," says Bakshi. Through market studies the company concluded that AC users' concern for high electricity bills were really not addressed by the new comers.

It launched energy-efficient air conditioner with Star rating from Bureau of Energy Efficiency to establish its differentiated position in the market. Besides the sales and distribution channel of the company was given an overhaul. Till 2006 the company was selling its products through sales and service dealers and not through retailers. That was changed by making ACs available off the shelf through the retail channel.

Customer touch-points were multiplied over 5000 from 2700, including distributors, retailers.

But "Star" rating was later made mandatory for all companies so the company looked for new initiatives and launched "All-Weather" AC based on new customer insights. It was developed and promoted as a product that could provide cooling in hot summers and warmth in cold winters and lower humidity during the monsoons.

With this the company gained the pole position in May 2012 as per the market research firm GFK Nielsen's survey for volume sale at mutli-brand outlets. The company still enjoys the leadership position in the category with near one fifth market share in multi-brand outlets which is about 90% of total market. However in the survey that combines both exclusive brand outlets and multi-brand outlets in volume term the company has been in a neck to neck fight with Korean giant LG this year.

"Voltas learnt the game very quickly," says Rajeev Karwal, a veteran of consumer durable industry who is credited with bringing LG to Indian in 1997 and also served as the CEO of Electrolux Kelvinator. Karwal has now turned an entrepreneur by launching his venture Milagrow that deals in robots. "While they have been good at innovation they also offered better quality products at competitive pricing which helped them win customers," he says.