Question 1: 1. Inverter vs.

UPS industry in India We conducted an industry analysis of the Inverter and UPS industry in India using the five forces and also the trends affecting the industry using PESTLE. Below are our findings: Trends in Market Size for the Inverter industry Looking at the Inverter industry under the PESTLE lens our key findings are that the impact on market size will be technological innovations in the field of batteries for inverters. Batteries today are not always bought from the manufacturer of the

inverters. By investing in R&D on batteries manufacturers can drive the cost of production of combinations and hence capture the margins that the battery manufacturers are currently commanding.

Figure 1: PESTLE Analysis of Inverter Industry

The other factor where we see an increase in market size is due to the growth in disposable income among the increasing middle class. This will directly translate to a growth in users of inverters as customers have more and more money to spend on products that are now considered wants but are soon moving to be needs. All our findings for the inverter industry are summarized in Figure 1 above.

Trends in Market Size for the UPS industry With the large scale movement of technology companies to India and the explosion in required infrastructure to support this growth we expect there will be a continued growth in the market size for this industry. The supply of energy requirements has not kept up with the demand from these growing companies. In effect there are large scale power cuts and hence we anticipate growing dependence on UPS devices.

Figure 2: PESTLE Analysis of UPS Industry Also since these technology companies need more and more data integrity and storage, backup will be critical. Even a few minutes of loss of connectivity can lead to

catastrophic effects. This will be another factor contributing to continued growth in this market. More on the factors affecting trends in this industry is given in Figure 2 above.

Inverter Industry Value Chain The value chain for the Inverter industry is as shown in Figure 3 below.

Figure 3: Value Chain for the Inverter Industry

Currently customers are capturing most of the value chain because they are very price sensitive. The retailers and distributors get their margins over the manufacturers. The battery developers capture a lot of the value in this ecosystem. Suppliers of other parts do not possess too much leverage here. Overall the value captured by the manufacturers is not as high as that captured by other players in the chain.

UPS Industry Value Chain We analyzed the industry by splitting it into large and small UPS manufacturers since these markets address different needs.

Figure 4: Value Chain for the small UPS Industry

The small UPS manufacturers cater to a limited subset of customers and the market is largely fragmented. This has led to large reduction in prices here. The parts required here are easily available and commoditized leading to low margins for suppliers. The value is again captured more by the customers and the resellers/channel partners rather than the manufacturers. The large scale entry of low cost options from China and Taiwan are further driving this value down. Figure 4 shows the value chain for the small UPS industry. The large UPS manufacturers on the other hand cater to corporate clients. This market needs more technological investment and brand awareness. Corporate clients are less price sensitive and willing to pay for devices that provide better back-up and also better service and maintenance contracts. Manufacturers are able to capture more value along the value chain here as compared to other segments like low power UPS and the inverter market. Figure 5 below summarizes the value chain for the large power UPS market.

Figure 5: Value Chain for the large UPS Industry Porter Analysis of Inverter Market Porter analysis of the inverter market revealed power of buyers to be the highest in this industry. Customers in India are highly value conscious and pay only for the features they need. This has manifested on the price of Luminous Inverters actually having to reduce prices from $980 in 1991 to $270 in 2001, a 72% reduction in price. Moreover the power of the complements the batteries is pretty high as well. These batteries are priced about three times the actual inverters and involve significant costs for the buyer. However these are not specific to the brand of the inverter and hence can allow customers to switch to a lower cost inverter. In the future when overlaying the PESTLE factors we do not anticipate a significant change in buyer power. The power of complements however will reduce based on the increasing investments in R&D in this domain. Figure 6 below shows the analysis of the forces affecting this industry.

Figure 6: Porter 5 Forces for Inverter Industry

PESTLE

Porter Analysis of large UPS and Small UPS markets

Figure 7: Porter 5 Forces for large UPS Industry

PESTLE

Figure 8: Porter 5 Forces for small UPS Industry Figures 7 and 8 above summarize the porter analysis of the large and small UPS markets. For the large UPS market we see the barriers to be entry to be high now and tomorrow. The

PESTLE

competition will also continue to be intense among the big players. The customers are less price sensitive here and that will continue to want good brands backing the products. In case of the small UPS markets the buyer power will remain high. Also the barriers to entry will continue to be high and the rivalry among existing firms will also be high. The product will become highly commoditized leaving very small margins for incumbents. Conclusion Overall our analysis of the inverter and UPS markets has led to the following conclusions. The large UPS market is the one with lowest power of buyers. The small UPS and the inverter market have and will continue to have large buyer power. The power of suppliers is low in all these industries. Though considering battery makers as suppliers for the inverter market leads to high power for the inverter market. The threat of new entrants is low for the inverter and small UPS market whereas it is low for the large UPS market. The rivalry is intense in all three markets and this will continue to be the trend as manufacturers compete for market share. In general the inverter and small UPS market are used for non-critical applications whereas the large UPS market is more for critical applications and hence customers require more brand backing and also service requirements. Large UPS devices also have high installation costs leading to high cost of switching when compared to the small UPS and inverter market.

Question 2: Schneider electric is well positioned in the Indian market with 9.4 percent share in market, ranking third in a market dominated by multinationals. Its differentiation strategy has revolved around positioning itself on the value curve with high value high relative cost product offering

Figure 2: Schneider's Positioning

It has achieved this by leveraging its existing advantage in technology and know-how and then taking the requirements of the local market into account. This approach has relied on the following competitive advantages: Organizational advantages: Organizational Service initiatives that include a rapid response customer initiative helping reduce down time and complaints. Field remote testing that has helped lower costs of maintenance call outs.

Intangible advantages: Technological know-how and leadership allowing them to tailor to the local market environmental and infrastructure conditions, which would require a large R&D investment to match. Brand name known worldwide for reliability in the corporate UPS market, and built over many years allowing them a certain element of brand loyalty making an entrants task more difficult. An innovative pay as you grow system , which works well in a market where customers demand as little upfront payment as possible, allowing to lock in long term recurrent revenue and making it difficult for competitors to poach the client.

Among the competitive disadvantages which are mainly due to the global UPS business:

 Quality standards set by the head office which prevent flexibility when it comes to sacrificing quality vs. cost as per market requirements. Stringent requirements to stick to legal requirements and standards arduously something local competitors sometimes do not in the interest of capping cost.

Question 3: a) In order to draw the value curve for Schneider and Luminous in the converter industry, we used the following customer value drivers: Price Reliability Design Prestige Life expectancy Service responsiveness Maintenance requirement Cost effectiveness Distribution network Noise

Schneider
5 4

Louminous

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As can be seen in the chart, while Schneider is ranked higher on some of the drivers, such as design and life expectancy it, it fails to focus on the drivers that actually are perceived valuable by the customers. Therefore Schneiders cost is higher, without actually raising the willingness to pay at the customer. Luminous on the other hand is very focused on keeping costs lower, by cutting out value drivers, which dont raise the willingness to pay, but it is not compromising on others, such as service responsiveness and a strong distribution network.

b) Luminous is well position in the Indian inverter market with 14.6 percent share, ranking second behind Microtek in a market dominated by local players.

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It has achieved this by being extremely customer oriented, with rapid innovation, and innovative aggressive marketing. This approach has relied on the following competitive advantages: Organizational advantages: Integrated growing manufacturing and supply chain allowing cost savings through economies of scale. 24/7 call center facility for servicing the inverters with specialized software Staff culture where degrees take a back seat to motivation and working beyond the normal call of duty, difficult to replicate as it is a reflection of the founder and CEOs philosophies and work ethos.

Intangible advantages: Brand image built with effective marketing involving local celebrity endorsements

Tangible Office locations in cheaper areas of Delhi. Distribution infrastructure network with far reach with hubs in every state bringing them closer to consumers and expensive to build and replicate.

Among the disadvantages luminous suffers is: being India centric means that improving power availability in the big cities is squeezing its total market size, Being a top down company, too reliant on its CEO for decision making which would suffer in his absence. c) Schneider electric is not well positioned in the Indian inverter market with a negligible share in a market dominated by local players , this being due to their product being overpriced and not localized enough hence lying under the willing to pay curve in the productivity frontier curve.

Its main tangible advantage here is its technological lead with superior know how, but this has not proved very effective due to the fact: most consumers did not see their product as a better offering or did not care enough about the drivers like noise and aesthetics that they had a lead in. Educating the consumers about the long term cost savings due to superior offering would have proven difficult due to the highly fragmented market and the cultural acceptance of product breakdowns as long as someone would come fix them (lower cost of labor in India would probably be one the main reasons behind this).

Alternatively producing with lower quality standards in certain points that did not matter to consumers to lower costs was not possible due to production methodologies set by the head office over 25 years which could not be ignored. The competitive disadvantages it suffered from included: Limited brand recognition in this consumer segment restricting the buyers willingness to spend. Low penetrations of the distribution channels where most inverters were sold. The fact it bought parts at market value when competitors manufactured them hence subsidizing their product and putting it at a cost disadvantage.

Question 4: Giving the current market conditions and the results that Schneider Electric has experienced in the Indian Market so far, the pros and cons of the three strategic options presently contemplated by the company are the following: Exiting the segment: Schneider Electric is a global leader in the energy management field and its products are largely considered cutting-edge in terms of safety, reliability, efficiency, ease of management and ease of connecting renewable energy sources. When the company first entered the Indian Inverter Industry, it tried to apply the same principles that catapulted its success and thus, came up with technically superior inverters that were about 20% more expensive than rival. Given that the Indian market is very different than the American and European markets, this strategy didnt work. Indian Inverter customer are much more price sensitive and hence care more about immediate cost efficiencies than quality. The willingness to pay from Indian customers is therefore lower but also, due to the high quality of the product, the cost for Schneider of producing Inverters is higher, translating into having lower competitive advantages in relation to competitors. Even though the latter alone would be a good reason to exit the market under different circumstances, we should take into the account the high importance that emerging markets currently have for Schneiders long term strategy. In that regard, the Indian market is of particular significance due to its size and rapid growth and therefore would not be wise to abandon a market with such large potential. The Indian market is widely considered by the company as a laboratory for experimentation and innovation.

Going it alone and growing the business organically: Even though we recommend for Schneider to stay in the Indian Market, we consider that the option of growing the business organically would not be the most beneficial for the company. Under this scenario the company would still have the competitive disadvantage related to a lower willingness to pay from the customers and higher production costs (as explained in the previous point). Moreover, if the company decides to manufacture lower quality products under the Schneider brand, it could affect the brand value globally (brand dilution) and also create a risk of cannibalization. In addition, Schneiders workforce is used to developing and manufacturing high quality products and hence, asking them to produce what could be viewed as inferior products, might not be well received and would need extraordinary efforts by the general management to maintain the employees in synch with the strategy. Another aspect to be considered is the fact that Inverters needed special batteries that could be bought separately. Nonetheless, lately the trend among Indian competitors was to also produce the batteries and to sell them in tandem with the Inverters. This creates another competitive disadvantage for the company as it does not have the know-how to produce the batteries. Moreover, coming up with reliable, rapidly-charging and long-lasting batteries, requires significant R&D and capital expenditure. Finally, an important deterrent to continue growing organically in India are the non-compliance issues experienced in that market. Some local companies gained costadvantages by performing tax evasion and under-delivering on product specifications. In order to succeed in this type of market, the company might feel compelled to follow such practices which are by all means against the Schneider Electric core culture. The latter would greatly damage the brand globally.

Making an offer to acquire Luminous: We consider the option of making an offer to acquire Luminous the most feasible and practical one. The disadvantages mentioned in the previous points would be partially diluted due to Luminous trajectory in the Indian market, its know-how and its installed capacity. By acquiring an existing company such as Luminous, Schneider would immediately gain a strong penetration in the market and also would benefit from the rapid growth that Luminous has been experiencing (annual revenue growth of 56%). Moreover, an existing local company with a long trajectory in the market (Luminous operates since 1988) possesses a better understanding of the

specific customer needs, offering in this way the right product at the right cost for each particular segment. In addition, Schneider would benefit from Luminous access to alternative sale channels (28 sales offices and a dealer network of 25.000). Luminous has also a reputation of being able to rapidly adapt to the market needs and also enjoys the benefits from the flexibility of manufacturing raw materials in house. The organizational issues that the management will have to face by acquiring Luminous would be related to the integration of two firms with very different cultures, which also operate in dissimilar markets. Therefore, there should be an effort by the acquiring company to avoid the straddling disease. Acknowledging how different from each other these companies are would be the first step towards a successful acquisition. First of all, Luminous has a strong brand and therefore it should not be changed. By maintaining the Schneider and Luminous brands separated the parent company would be able to benefit from the strong position that the latter has in the Indian market, while also avoiding the risk of cannibalization. Even more so, the parent company has to recognize and value Luminous own culture. This culture is characterized by a top-down structure, where the founder and CEO of the company has a hands-on approach when managing the firm. He is also extremely respected by the employees and thus, the loyalty to the individual and to the company is inseparable. Considering the latter, Schneider should make an effort to retain Malhorta in order to preserve the loyalty and motivation of the employees. By retaining him and giving him proper autonomy, Schneider would actively be avoiding the straddling risk mentioned above. Nonetheless, Malhorta should also have constant communication with HQ (committee) in order to agree on key strategies and goals.

Question 5: As mentioned in question 4, one of the benefits Schneider Electric will gain from acquiring Luminous is the capability of manufacturing products tailored for customers in emerging markets i.e. low cost products with the necessary specs to exactly satisfy customer needs.

Therefore, Schneider must leverage this capability in order to enter new emerging markets such as Asia and Africa especially that Luminous has already invested in 2 new facilities as well as marketing and brand building for this purpose. Also, another market that would be interesting for Schneiders new capability would be Latin America. Schneider can build new

plants in Latin America that would use Luminous manufacturing model e.g. Bolivia might be a good country to start as it is very rich in Lithium, has low labor costs and some energy/electricity issues.

As shown in the figure below, in addition to inverters, Luminous owns a portfolio of current and planned products some of which are not directly aligned with Schneiders Strategy.

Figure 3: Luminous Product Portfolio

As a result, Schneider can enter the aforementioned markets by extending its product offerings to include the below cheap and customer-specific products: Power Back-up Devices Project Business Renewable Energy Solutions

Moreover, Schneider can try to develop a new offering around power storage equipment such as VRLA and auto batteries.

However, since Schneider has maintained a deliberate Global strategy of not entering the upstream and downstream sectors of energy, it might need to spin-off Luminous Home Electrical Products and some of their power generation tools such as the Diesel Generator sets.

The target customers of these new initiatives are low to medium income households and businesses that are looking for affordable power sources/backups. The value proposition to these customers is to buy cheap and efficient power related products with only relevant features. By doing so, Schneider is attracting a new set of customers in this industry by

reducing their manufacturing costs and slightly increasing customers willingness -to-pay as these customers were not interested in purchasing these equipment in the past. These new and extended offerings are likely to cannibalize some of Schneiders current global offering as they are cheaper. However, because the key features are targeting a new and different set of customers (low to medium income households and businesses), the losses from the cannibalization effect will be much lower than the expected revenues that will be generated by capturing a relatively high volume of new customers in these emerging markets. In addition, as mentioned in question 4, Schneider should keep its brand different from that of Luminous. This will ensure that the global image of Schneiders premium product is not destroyed and will allow Schneider to play in both positions as shown in the picture below: 1- High end premium products under the name of Schneider and, 2- Low to Medium products under the name of Luminous

Figure 4: Schneider and Luminous Positioning

Question 6: What would you try to sell him? With the mentioned requirements we assume that the customer is highly price sensitive, and does not expect superior quality of the inverter and the battery. Rather than paying a bigger upfront price, he is willing to compromise on the life expectancy and design. He furthermore does not care about any of the brands, as he is not even aware of them.

As a result he wants the cheapest option, which gets the job of supplying energy done. Therefore we would sell him either a Microtek or Luminous inverter, which should fulfil all his requirements, while being a low cost option. As we carry a wide range of products, we dont care if we sell him a system of inverter and battery from a specific brand, but actually want to sell him the cheapest battery to make the sale. Therefore we would sell him an Exide battery, which we assume to be the cheapest.

The sales pitch. Why the right product for him: The sales pitch, would be that he gets the best solution for his needs, without paying a high price. He gets what he needs without paying for any other fancy stuff, which just drives up the price but doesnt actually help him. The option he bought will let him run the number of fans and lights he needs and as the components are available off-the-shelf any repairs will be cheap and quick.

Why did you take this approach? We took this approach in order to close a sale. We assume that, if we tried to push the customer to buy a higher priced product, he would not buy anything, as he does not see the value in paying more, and we would have lost the sale.