Kanika Datta: The weaknesses of dominance

SWOT

Photographs of West Bengal industrialist P K Ruia walking into Dunlop's Sahagunj factory like a relieving force must have been heartening for the workers at this beleaguered tyre-manufacturing unit situated a couple of hours outside Kolkata.

It is difficult not to admire Ruia's courage. Once a company that dominated the Indian tyre industry like a colossus, Dunlop is a now pale shadow of its former self. Closed since 1998, it has been ailing for much longer. Reviving it will take much more than the crores Ruia plans to pour into Sahagunj and the Tamil Nadu factory at Ambattur. Decline has been in Dunlop's DNA for many decades now.

It would be easy to ascribe Dunlop's deterioration to its recent history of indifferent management, chronic promoter problems, and bad labour relations. In reality, these factors only accelerated a trend that started decades ago""when Dunlop was at the apogee of its power. In fact, for companies that dominate their markets, Dunlop represents an object lesson in the dangers of dominance.

Till its overseas stake was acquired by the partnership of M R Chhabria and the RPG group of Kolkata in the late eighties, Dunlop was very much the epitome of Kolkata's spiffy boxwallah culture. Its expat executives were prominent members of Kolkata's social life, and Sahagunj, the mother factory, was an idyllic complex in the midst of one of West Bengal's less salubrious district towns.

Like many of the large manufacturing units of the time, Dunlop thrived in the protected economy, enjoying a substantial rent from an artificial shortage (much as the tea companies did). With no competition to parry, Dunlop's management rarely had to think in terms of shrewd strategy or creative labour relations or even investing in technology. The company dominated the market and earned easy profits, simply by virtue of its historical presence.

Not unexpectedly, this was an era of massive, benign neglect, though few would have seen it at the time. Coincidentally, Dunlop became an easy target for unions, which extracted all manner of benefits for an already pampered workforce. As for executives, it was a great time to work for a company like this where the quality of life was good and the work not too challenging or demanding.

All of this started changing when the partial liberalisation of the mid-eighties saw the entrance of feisty competitors. Hungry to establish themselves, new entrants like MRF changed the market dynamics by focusing on high technology and building brands. Dunlop by then was in no position to respond; it started collapsing under the weight of its own size. Dunlop was overstaffed and uncompetitive but years of succumbing to union demands and the lack of competitive thinking now pinned it down.

Where competing factories were becoming fully automated, Dunlop continued to pay one category of workers a special milk allowance to manually manoeuvre tyres in the production process.

By the time it was sold to the Chhabria-Goenka consortium, Dunlop was an orphan brand in more than one sense of the term. It rapidly rolled out of the reckoning, its market share dwindling into low single digits. By the early nineties, it had stopped sending its monthly production and sales figures to the All India Tyre Manufacturers Association.

It didn't help, of course, that Dunlop's new owners also fell out for unspecified reasons. By the late eighties, each one started telling reporters, off the record, that the other was his servant. While this created much amusement all round, it did little to push Dunlop out of the rut. Things did not improve much with the RPG group's departure to focus on its own tyre company, Ceat.

The inevitable followed with labour problems flaring up every so often as desperate workers started sensing that they were in for tough times. The tragedy was that Chhabria had few answers. Much imaginative invective was spewed at the workers, unions and their lack of co-operation, but the labour troubles were merely symptoms of a deeper strategic weakness that required tough decisions.

Where other manufacturing units all over India rapidly started adjusting to the new liberalised business environment with some vigorous and realistic restructuring and downsizing, Dunlop simply rolled over, pulled down by the weight of its follies. Reviving it requires hard decisions and shrewd strategy. This could be Ruia's toughest test yet.