An Analysis of Decline of HMT watches Using Business Statistics
Group Members (Section B) Roll Number Dhruv Mathur 10DM-044 Harshni 10DM-061 Ashutosh Agarwal 10HR-010 Debanjan Das 10FN-127 Ashish Wadhwa 10FN-124
[email protected]
1
Email-id
[email protected] [email protected] [email protected] [email protected]
SUMMARY HMT as a brand is popular among the masses as a premium watch making company. It is the First major watch manufacturer in India and undisputed market leader till the entry of Titan in 1987. But gradually it started losing the market share and the company has been running in losses for the last 10 years. The topic seemed interesting to us because we came across an article : HMT likely to get revival package by beginning of FY'11(4 Feb 2010 Economic times). We decided to use statistics to help HMT take a better business decision so that they can recover from losses. In this project, our main motive is • • •
To analyse the Decline of HMT watches To analyse the success story of Titan and take lessons from them To suggest HMT some investment strategy so that they can recover their lost market share
The statistical tool that we intend to use in this project is primarily Regression Analysis. We intend to find out the sales figures, the balance sheets of the 2 rival companies, Titan and HMT and then analyse the investment strategies of the 2 companies. In the coming pages an attempt has been made to present a comprehensive report in which statistical tool has been used to take managerial business decisions.
2
ACKNOWLEDGEMENT We would like to express our gratitude towards to Ms. Gunjan Malhotra who helped us a lot in completion of our study. She was there to support us whenever we needed help at every point of our study. It is because of her kind assistance that we were able to complete this project successfully.
Dhruv Mathur Harshni Ashutosh Agarwal Debanjan Das Ashish Wadhwa
3
CONTENT Page INTRODUCTION
5
LITERARY REVIEW
7
OBJECTIVES
10
HYPOTHESIS
11
METHOLOGY AND TOOLS
12
DATA ANALYSIS
13
PLOICY IMPLICATIONS
20
RECOMMENDATION
20
REFERENCES
21
4
INTRODUCTION Hindustan Machine Tools is a public sector undertaking of the Government of India. In 1953, the latter incorporated the machine tool manufacturing company by the name of Hindustan Machine Tools Limited. HMT as a brand is popular among the masses as a premium watch making company. However, since its very inception, HMT Limited is into a lot of other things as well. Over the years HMT, (as Hindustan Machine Tools is popularly known) has diversified into watches, tractors , printing machinery, metal forming presses, die casting & plastic processing machinery, CNC systems and bearings. HMT has also been successful in absorbing technology in all product groups by collaborating with recognized manufacturers from all over the world. Today, HMT has six subsidiary companies under its supervision namely: • • • • •
HMT Machine Tools Limited HMT Watches Limited HMT Chinar Watches Limited HMT International Limited HMT Bearings Limited
We are going to concentrate on HMT Watches Limited. In 1961, HMT set up India’s first watch factory at Bangalore in collaboration with Citizen of Japan. HMT is the First major watch manufacturer in India and undisputed market leader till the entry of Titan. Its Main quality offered sturdiness and reliability. HMT Limited, the first company to start watch manufacturing in India; has incorporated "HMT WATCHES LIMITED" as its fully owned subsidiary on 9th August 1999. Now let’s concentrate on the turning points of this company and watch industry as a whole •
1960: Indian Watch Industry came into being. Govt. took the decision to set up the country’s first watch factory
•
1961: HMT set up India’s first watch factory at Bangalore in collaboration with Citizen of Japan
•
1981: Hyderabad Allwyn Limited entered the watch industry in collaboration with Seiko of Japan
•
1984: The beginning of a new era - entry of Titan, the Tata –TIDCO joint sector company
•
1990: Timex enters the Indian market in partnership with Titan, targeting the lower price segment
•
1997: Timex breaks away from Titan - increasing the already fierce competition.
5
Until the mid-1980s the industry was predominantly producing mechanical watches. Its prime product category (mechanical watches) was in the decline stage of PLC. HMT didn’t embrace new quartz technology to a great extent & suffered because of their adherence to mechanical watches. HMT was the undisputed market leader a few decades back. HMT had the overall market share of 26% during 1997-98 and it dropped to 14% during 2001-02. Out of this, HMT still had 70% market share of Mechanical watches during 1997-98, which increased to 94% during 2001-02. Company performed poorly in Quartz market, it had market share of 8% for five year during 1998-2002. This shows how the sale of mechanical watches dropped drastically. The value curve for Mechanical watches kept falling and there was no driving force from HMT to oppose this. The installed capacity for manufacture at Bangalore and Ranibagh units was 15 lakh and 20 lakh watches per annum respectively. The demand for mechanical watches in India has been showing sharp decline in view of customers’ preference for technologically improved and reasonably priced quartz watches. The demand came down to 12.59 lakh watches in 1999-2000 out of which the Company’s share was 70 per cent. This further declined to 1.30 lakh during 2003-04, almost wholly contributed by sale of HMT watches. HMT remained into losses for last 10 years. We would be looking into the possible reasons for the downfall.
6
LITERARY REVIEW We came across a lot of articles. A few of them has been given below. •
Source: Report No.4 of 2005 (PSUs) MINISTRY OF HEAVY INDUSTRY AND PUBLIC ENTERPRISES CHAPTER XI HMT Limited Mid-term Review on Turnaround Plan
We come to know how the demand came down to 12.59 lakh watches in 1999-2000. This further declined to 1.30 lakh during 2003-04. So the demand for mechanical watches indeed decreased. •
Source: http://www.scribd.com/doc/23429195/Write-a-research-paper-on-managerialeffectiveness-as-related-to-organisation-climate-and-leadership-and-effectiveness-inindia HMT did not pay much attention to R&D and design, aesthetics and design. While its competitor titan kept innovating its products with latest technology, features and design, HMT was still grappling with its basic design models. MT could have hired some good designers to design new models of the watches. With customer looking for new varieties of watches after 2000, this could have boosted their market share.
•
Source: http://www.scribd.com/doc/36060924/hmt Lack of promotion and marketing strategy was another big mistake. HMT could have emphasized on Mechanical watches only and could have provided a greater competition to Titan by selling over the strength of Mechanical watches. Some of them could have been as follows: a. Quartz watches are as reliable as mechanical, but you cannot predict the life of the battery. b. The parts to replace are easily available for mechanical watches, but for age-old quartz watches, the battery would have been obsolete. c. Mechanical watches last longer (provided serviced on time), while quartz watches have lesser life because of the limited life-span of the electronic circuitry. Mechanical watches have good resale value. So, HMT could have made it a point that, if you want quality, class, precision and historical value, go for Mechanical watches.
•
Source: http://www.indianjournals.com/glogift2k6/glogift2k6-1-1/theme_4/Article %207.htm GLOBAL COMPETITIVENESS OF PUBLIC SECTOR ENTERPRISES OF INDIA
7
The globalization of the economy brought the best technologies to India. The new technology inputs brought along with it substitutes of the various products presently being used. HMT Watches now faces intense competition from the low cost digital watches from China and Hong Kong.
•
Source: http://www.lbhat.com/brands/when-brands-become-obsolete/ Changing consumer or changing categories?
The trick is in figuring out changing consumer trends and preferences and rejuvenate the brand accordingly. Brand’s become obsolete due to a combination of various factors. A brand can be defined as a set of images & perceptions that a consumer has. If those perceptions are not in keeping with the changing consumer, the brand could be obsolete. HMT watches comes to mind as an example. It appears that HMT failed to convert its perceived weakness of a mechanical watch into a strength. It also failed to keep pace with the changing consumer trends by not projecting a modern, attractive imagery through product innovation, advertising, merchandising etc. Some brands are closely associated with a category. But due to technolgical changes the categories disappear and with it, the brand. •
Source: http://www.questionhub.com/YahooAnswers/20090611131736AA65xhK We find a comprehensive SWOT analysis for HMT watches. This actually helped us to find out the independent and dependent variables during regression.
•
Source: http://www.hinduonnet.com/fline/fl2315/stories/20060811003511700.htm Not spending on advertisement puts a big question mark on the awareness level of the customers about HMT watches caused by lack of advertisement. This analysis becomes more critical, when compared with expenditure made by its competitor Titan. While titan engaged major celebrities like Amir Khan, Kapil Dev etc. for its advertisement, HMT advertisements went almost missing from print & electronic media. Underestimating the power of advertisement was one of the key factors for HMT to lose its market share. Also, HMT could have done some research on various new ways of advertisement.
•
Source: TOI Kolkata. 15th june 2010 Innovation was one important missing factor from HMT’s culture and strategy all through years. It could have innovated various ways of advertisement (celebrities, discounts, sponsoring events etc.), marketing (renovating stores, making distribution channel more efficient etc.), getting customer feedback, adopt the changing market conditions etc. Attracting the young generation through media was completely missing. HMT could have collaborated with some of the good retailers of different brands (with big distribution network and good retails showrooms) to display and sell some newly launched models.
•
Source: http://economictimes.indiatimes.com/news/economy/finance/HMT-likelyto-get-revival-package-by-beginning-of-FY11/articleshow/5536141.cms
8
HMT likely to get revival package by beginning of FY'11 (The Economic Times, 4 Feb, 2010) ○
Public sector enterprise HMT Watches is likely to receive a revival package from the government by the beginning of the next financial year for plant up gradation and revamping marketing strategy. "We have already submitted a revival plan to the government and we expect to get the package by the beginning of FY'11. We then plan to strongly focus on marketing and brand-building of our watches," HMT Watches Managing Director S Paulraj told PTI here without divulging further details.
○
"We want to strengthen our brand in the rural market, where bigger brands such as Titan are not present (in a big way). We see a huge potential in the smaller cities. HMT still has a good image and we want to leverage this," Paulraj said. HMT will invest on brand-building this year, including in advertising, he said.
•
Source: http://www.hindustantimes.com/HMT-expects-25-pc-growth/Article1481466.aspx HMT expects 25 pc growth (The HT Times, November 30, 2009) ○ During 2009, the company has brought out 54 watch models for both men and women priced most affordably at Rs.325 to Rs.345 oriented towards rural market. In line with the current trend, HMT has introduced environment friendly models of high precision automatic day and date watches in the price range of Rs 3,000 to Rs 3,500. ○ HMT expects 25% growth next year (interview with S. Paulraj, Managing Director, HMT Watches Ltd.)
•
Source: http://www.scribd.com/doc/6153244/Hmt-Watch-Company-Renewl-PlanDocument HMT watches a household name in the yester years have come to a stage where no one is even aware of the brand name itself barring few of our elders. What actually happened? What made HMT lose its sheen? HMT is known for high quality and reliability. But somewhere along the line HMT has forgotten to tighten its bolts. Some of the key issues regarding HMT have been discussed.
OBJECTIVES •
To analyse the Decline of HMT watches
9
•
•
•
To suggest HMT some investment strategy so that they can recover their lost market share To check the trend of various performance parameters like Sales, Operating Profit, Market Share and Average Selling Price with time. For this the data has been collected for each parameter and compiled into a time series format. Then on regression is done with the particular parameter being the dependent variable and a time unit being thee independent variable. The general trend is checked without considering the accuracy of the regression plot. Analysis of the most important parameter of a company, i.e., the Sales. This is done through regression. The sales variable is taken as the dependent variable and the regressed against various independent variables like R&D expenses, Selling & Marketing Expenses. Also the sales by volume are also checked.
HYPOTHESIS Since the complete project is done using the regression tool, it involves a lot of use of the concept of hypothesis testing. NULL & ALTERNATE hypothesis used in the analysis is listed below:
10
Regression of Sales with R&D Expenses, compensation to employees, advertising and marketing expense: NULL HYPOTHESIS: The coefficient of R&D Expenses, compensation to employees, advertising and marketing expense variable is zero. Hence Sales do not depend upon R&D Expenses, compensation to employees, advertising and marketing expense. ALTERNATE HYPOTHESIS: The coefficient of R&D Expenses, compensation to employees, advertising and marketing expense variable is not zero. Hence sales depend upon these factors.
METHOLOGY AND TOOLS The methodology used by us in this project is to apply regression to the various performance indicating parameters like sales, profit, market share and average selling price with respect to independent variables like time, expenses, etc. The regression equation and the line fit plot are obtained using the MS-EXCEL Regression tool. The regression equation so obtained is
11
analysed to check for the effect of the independent variables on the performance parameters chosen by us. Both simple and multiple regressions have been applied to the data. The tool used by us for analysing the performance is the Regression Tool of MSEXCEL and SPSS. Regression is a process which is very widely used to test statistical data. Regression is used to estimate an equation which will give the value of a dependent variable in terms of some independent variables. The first step in the regression process is to form a model, i.e, to assume an equation. Thus the dependent variable is assumed to be some linear combination of the independent variables being tested. The second step is to collect data (mostly in time series form) of the dependent variable and independent variables. After ample data has been collected, a best fit line is obtained. The equation of this best fit line would be our regression equation. After the regression equation is obtained we need to apply certain statistical tests to it in order to check its validity or rather the extent of its validity. These tests include the Coefficient of determination test, t-value tests and F-statistic test. If our regression analysis consists of only a single independent, then critical t value test is used. In this case we use the concept of Null hypothesis. The null hypothesis basically states that the value of the coefficient of obtained for the independent variable equals zero. A t value is obtained and if that t value is greater than the critical t value obtained from the t table, and then we reject the null hypothesis and claim that the coefficient is not zero and hence the particular independent variable is statistically significant. Another test is the coefficient of determination test. It tells us how much of the variation in the dependent variable is actually explained or due to the variation in the independent variable. This is calculated in percentage terms. The higher this percentage, the better and more accurate is our regression line. If our regression equation contains more than one independent variables then, we use the FStatistic test. F-statistic first states the null hypothesis that the coefficients of all independents are zero and then attempts to reject this null hypothesis. The procedure of checking is exact same as the t-value test. Source of Data: CMIE database and internet searches. The analysis of some parameters has been done yearly and for other parameters its been done quarter wise based on the availability of relevant data.
DATA ANALYSIS ➢ Product manufactured with respect to time HMT Watches Ltd.
Product/s manufactured/traded In thousands
2004-2005
419.55
2005-2006
359.06
12
2006-2007
450.78
2007-2008
205.01
2008-2009
200.12
Analysis: This regression equation is not very significant. It’s been used just to show the general trend of yearly sales with time over the period 2004-2009. The trend can be clearly seen to be negative. The yearly sales have increased with time as is shown by the positive coefficient of t. The graph below clearly reflects this fact:
Market share of HMT and its competitors Market Shares (in %) Year
Production (in 000 nos)
Market Size (in Rs crore)
1992
Titan Watches 29
HMT Watches
Timex
Others
55
1993 29401.6
516.3
37
47
3
13
1994 30648.4
465.5
49
30
5
16
1995 20918.6
587.4
45
22
12
21
1996 24726
766
41
23
13
23
1997 36480.7
797.3
45
21
10
24
1998 36717.5
746.3
48
22
10
20
2010 101367.4
2250.2
65
Negligible
21
Graphical Representation
13
Comparison between HMT and TITAN Annual Annual Annual Annual Annual Annual Annual Annual Indicator
Units
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
Watches & clocks (incl.parts) sales: Titan Industries Rs.crore 460.95 423.51 417.53 488.08 521.28 598.79 695.14 780.07 Watches & clocks (incl.parts) sales: H M T Watches Rs.crore 104.12
69.53
36.05
18.51
18.71
17.69
34.15
13.5
Annual Annual Annual Annual Annual Annual Annual Annual Indicator
Units
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
14
Watches & clocks (incl.parts) market shares: Titan Industries Per cent Watches & clocks (incl.parts) market shares: H M T Watches Per cent
42.93
50.7
49.87
54.56
57.05
55.45
51.73
51.77
9.7
8.32
4.31
2.07
2.05
1.64
2.54
0.9
Graphical Representation
Expenditure and sales of HMT Profit/Lo ss(Rs. Cr) PAT
Total Sales(Rs. Cr)
H M T Watches Ltd. -59.18
March 2002
March 2005
R&D Expens es(Rs. Cr)
12.59
79.93
5.67
4.59
-106.29
69.53
2.39
18.01 72.97
3.67
-112.92
36.05
0.99
9.16 74.78
1.34
-134.81
18.51
0.25
5.92 59.14
0.25
-134.53
18.71
0.27
2.19 59.44
0.25
March 2003 March 2004
Marketin Compen g sation to expense( employee Rs. Cr) s(Rs. Cr)
104.1 2
March 2001
Adverti sing Expend iture(Rs . Cr)
15
March 2006
-96.31
17.69
0.09
1.32 74.15
0.26
-195.81
34.15
0.25
2.07 140.85
0.36
March 2008
-146.95
13.5
0.11
0.49 53.87
0.39
March 2009
-164.05
11
0.18
1.5 51.69
0.45
March 2007
ANALYSIS WITH SPSS AND EXCEL SHEET At first, we analysed the data using all the 4 variables: -- Advertising Expenditure, Marketing expense, Compensation to employees, R&D Expenses. But came to the conclusion that R&D expenditure is insignificant and there were problems of multi collinearity as well. To get rid of this problem, we drop this variable. We have done multiple regression and the results have been interpreted below. Please refer to the excel sheet and SPSS file attached in the mail.
INTERPRETATION OF RESULTS At first, we analysed the data using all the 4 variables. But came to the conclusion that R&D expenditure is insignificant and there were problems of multi collinearity as well. To get rid of this problem, we drop this variable. The regression equation for sales of HMT after dropping R&D variable is Sales = -1.919 + .697 Marketing expenses+17.49 Advertising expenses+ .216 Compensation to employees Interpretation: In absence of marketing, advertisement and compensation, the sales of HMT watches is statistically insignificant and null. The negative value indicates that there will be no sales. 1 unit increase in marketing expense will increase .697 units of sales.
16
1 unit increase in advertisement expense will increase sales by 17.69 units. 1 unit increase in compensation will increase sales by .216 units. R square = .998 and Adjusted R square = .996 The independent variables explain more than 99% variation in sales. Standard error = 1.896. The value is very low. DW statistics= 2.217 (between 1.75 and 2.25, there is no problem of auto correlation) F-Statistics analysis Significance F = .000. F value is significant. F-statistic calculated value = 725.098 As F-calculated> F-critical value, we reject the null hypothesis at the 5 % level of significance that there is no statistical significance between the independent and dependent variables. ANALYSIS OF T VALUE OF INDIVIDUAL PARAMETERS Marketing expenses: t-value 3.932>critical value and P-value is .011 < .05 Sales are significantly affected by marketing expense. Advertising expenses: t-value 24.596>critical value and P-value is .000 < .05 Sales are significantly affected by advertising expense. Compensation to employees: t-value 8.645>critical value and P-value is .000 < .05 Sales are significantly affected by compensation to employees.
17
PLOICY IMPLICATIONS The Indian watch industry began in the year 1961 with the commissioning of the watch division of HMT. The first watch model manufactured by HMT was the Janata model in the year 1962. HMT was the leader in the watch market till the Tatas formed Titan Watches in association with Tamil Nadu Industrial Development Corporation in the year 1987. They took a major strategy decision, which later changed the face of the Indian watch market- to manufacture only quartz watches. Liberalization in 1992 and the removal of quantitative restrictions due to WTO has opened the doors for many foreign brands in the Indian market viz. Tissot, Swatch, Omega, Rado, TAG Heuer, Rolex and many others. The import duties on watches are falling which makes the Indian market look attractive for the global majors like Casio, Swatch and Citizen. This is one of the major reasons for the downfall of HMT.
RECOMMENDATION HMT should invert much more on advertising, promotion, compensation. A few more suggestion includes:•
Marketing strategy:-HMT could have emphasized on Mechanical watches only and could have provided a greater competition to Titan by selling over the strength of Mechanical watches.
•
It could have innovated various ways of advertisement (celebrities, discounts, sponsoring events etc.), sales and promotion, marketing (renovating stores, making distribution channel more efficient etc.), getting customer feedback, adopt the changing market conditions etc.
•
Faster production of new models of watches for catering to the changing needs of the customer.
•
Visibility:-HMT can sponsor fashion shows in which all latest designs launched are displayed. This will increase the visibility.
•
Majority of the population in India live in rural areas. So, showrooms should be set up at places nearer to them.
18
•
Introduce cheaper and rough use watches for this segment.
•
After sales service has to be improved. That is, the process of servicing and repairing of watches should be made faster.
REFERENCES Books and Journals: Report No.4 of 2005 (PSUs). Mid-term Review on Turnaround Plan MINISTRY OF HEAVY INDUSTRY AND PUBLIC ENTERPRISES
HMT Machine Tools Catalogue Web Sites: • • • •
www.hmtmachinetools.com/ www.hmtindia.com/ www.titan.co.in/ www.titanworld.com
Newspaper articles: HMT likely to get revival package by beginning of FY'11(4 Feb 2010 Economic times) HMT expects 25 pc growth (November 30, 2009 Hindustan Times)
*List of all websites and references has been attached in a separate folder.
19
