India Inc is traveling in top gear even in the shadow of a slowdown

What makes companies invest, hire and expand their capacities when the economy teeters under the pressure of a prolonged downturn

It has not been an easy year to live down: 2019 has tested Indian industry’s perseverance and patience, as private consumption has shrunk and the storm clouds of an economic slowdown grown darker. Most companies have hit back with a drip of counter measures such as cutting back on production, cutting down employee counts and putting research and innovation expenditures in abeyance. But a few have eschewed popular wisdom; hiring instead of firing people, pushing for greater capacity utilisation and launching new labels and extensions instead of pruning the list down. A look at what some companies are doing differently and why:

Hyundai:  More cars, expanded dealer networks

The auto sector is among the worst hit in the country. Sale of passenger vehicles (PVs) fell by nearly 18 per cent in April-November 2019 over the same period last year. Within PVs, the sales for cars and vans declined by close to 25 per cent and 35 per cent respectively for the same periods, according to the Society of Indian Automobile Manufacturers. While there are green shoots; according to the sales reports of seven out of 15 passenger vehicle makers released early this week, the entire auto segment grew by 2.08 per cent at 208,546 units in December 2019, it is still too little and too early to embody hope or cheer.

In response, many companies have cut production and capex, some passenger car companies have halved their manufacturing capacities according to industry estimates. But Korean auto major Hyundai is cranking up the production line. The company says capacity utilisation is almost 90 per cent (annual production capacity is 765,000 units) and it is investing around Rs 7,000 crore on new products and new capacity. 

Hyundai India has also held firm on employee strength. S S Kim, Hyundai Motor India (HMIL) managing director and CEO said, “There has been no layoff so far as we have a responsibility towards our employees.” Established systems and processes help mature companies to spot changes and take appropriate action said Aditya Narayan Mishra, CEO, CIEL HR Services.

Hyundai has also spread its dealer network. The number is up from 490 in January 2019 to 515 at present. Plus, several new models were rolled out in the midst of the downturn. And in December, the company showcased its new compact sedan Aura.

According to the company, its strategy has been to treat the ongoing slow period as a cyclical downturn that will even out in the long run. At the same time, exports have served as an effective de-risking strategy. While the share of domestic market sales for HMIL fell by around seven per cent (industry down by 13 per cent), exports grew by 20 per cent and accounts for 25-35 per cent of the volume. The flexibility of its production facility to switch from one set of models to another, and the portfolio management approach of exports and domestic, has helped Hyundai, said Kim.

Nestle:  Launches, innovations and wider distribution

Reeling from shrinking consumer expenditure, a Nielsen report forecast that consumer goods companies ought to expect around 9-10 per cent growth for FMCG sector in FY2019, down from high double digits in the past. Demand was on the wane the report said, especially from the rural market. 

Nestle India during the quarter ended September 2019 clocked 10.5 per cent growth in its domestic business. Numerous launches and brand extensions have helped the company ride smooth in a bumpy economy. 

“I believe that a consumption slowdown is an opportunity for engagement and companies will have to make their brands robust, continue to innovate, and bring differentiation at a reasonable price,” said Suresh Narayanan, chairman and managing director, Nestlé India.

The company said it has made 61 innovations (changes in taste, new look, additional ingredients and so on) in its product lines since 2016. For example, several new flavours for Maggi, a new Milkybar called Moosha and Kitkat dessert delight. 

A report from ICICI Direct Research notes that Nestle has increased the pace of innovations. Success rates are high too. Out of 61, 40-45 have been successful and just 10 per cent of the total launches have been withdrawn. Contribution to sales from new launches has grown from 1.5 per cent to 3.7 per cent over the last three years. 

Nestlé India’s operating model is divided into 15 clusters to minutely track local issues and product performances. 

Vivo: Expansions, launches and more jobs

Keeping consumers happy and interested in the brand has been the key to tiding a slowdown said Nipun Marya, director Brand Strategy at Vivo. “We have been able to tap the market opportunity with irresistible offers for our customers. Having said that, even the smartphone industry is not immune to large scale macro-economic factors,” he added.

While the company is cautious about the times ahead, it is investing Rs 7,500 crore in its Uttar Pradesh facility and added over 2,500 employees taking the total to over 10,000 employees this year. More will join the workforce, Marya said. 

Vivo credits innovative features and sustained brand visibility for its success. The company has straddled both the omni and online sales channels with equal aggression. It has even experimented with online-only models (Z and U series) which have subsequently been launched on all retail channels. Vivo’s market share grew from 17 per cent in January 2019 to about 23 per cent in October 2019 (as per GFK), highest ever market share recorded by Vivo in India so far. Stepping out of the groove to tap to a different tune has paid off for these companies but to propose this as universal strategy to beat the recession is still a long shot.