KAZIAN GLOBAL SCHOOL OF BUSINESS MANAGEMENT MARKS: 80 COURSE: EMBA Sem-II

SUBJECT: MANAGERIAL ECONOMICS

N.B: 1} Attempt all the questions 2} All Questions Carries Equal Marks

Name: Kassilinka Hari Krishna Reference Number: KM-00612-30969 _______________________________________________________________________________ Case-1 Marks-16

Organizations across all industries are undergoing a shift in emphasis from tangible resources to valuable, rare and inimitable human resource in order to attain competitive advantage. Many leading organizations have started adopting an investment perspective towards their employees by moving from a traditional wage such a salary system to compensation “packages”. The underlying reasons behind such a change include ensuring a motivational climate, encouraging efficiency and productivity for attainment of strategic goals, and gaining control over labor costs. Wage and salary system bears a strong relationship with the performance, satisfaction and attainment of goals of the employees of a firm. This has prompted companies to start offereing full package of monetary and non monetary rewards as compensation or wage/salary to their employees. Dimensions of Compensation Compensation affects a person economically, sociologically and psychologically. It also compensates for the opportunity cost and real cost occurring to the specific type of human resource in being in the present context. Proper management of compensation helps a firm procure, maintain and retain a productive workforce. A sound compensation package should encompass factors like adequacy of wages, social balance, supply and demand, fair comparison, equal work and work measurement. The concept of adequacy can be disintegrated into two components: internal and external. The internal component can be linked with the concept of fair wages; it is the money wage adequacy for an employee to maintain a decent standard of living. External adequacy, on the country, is in relation to comparable jobs in the same or other industry(s) with the same skill-set required. Besides the element of adequacy, compensation is instrumental in motivation. An equitable compensation package may increase employee motivation. Inequity, on the contrary, may motivate employees to take corrective actions, which may be harmful to the firm. Firms thus link compensation to performance appraisal to enhance motivation, and hence productively. Compensation may also be looked upon as a controlling device to ensure that employees behave in a particular manner. An organization may choose to offer a higher package to a particular employee in order to allure another employee to perform better. Compensation in Software Let us now take you to the software industry, known in corporate history for adding new facets to realms of wage and salary administration. It is software that has introduced compensation as a multi-dimensional tool. Differentials in compensation packages among various essentially linked to performance and negotiability have all added new facades to compensation. In a recently conducted countrywide comprehensive survey of salary, Business world covered aspects like costs, comprehensive and benefits across 12 sectors of the Indian economy. The survey has revealed an arbitrage between high employee salaries overseas, with the low cost workforce in India. It has also found human resource contributing the largest component, namely 44 percent of the industry’s total

cost. The annual entry-level salary has been revealed to range from Rs. 3.21 lakhs in the western part of the country to Rs. 5.23 lakhs in the north. The Business world survey has found that the weakening dollar has hit the margins of the Indian software industry, thus compelling software organizations must focus on ‘added value’ of their employees, by encouraging them to increase their efforts and performance on a continuous basis. This can be achieved by an overhauling of the entries compensation packages, including basis salary, along with incentive systems (including increase in salary, performance bonuses, stock options and retirement packages). Apart from such core components, emphasis must also be given to redesigning non-monetary incentives like words of praise, special recognition, job security and autonomy in decision making. On the whole, all such parameters of compensation strategies should be directed towards providing the ability to reinforce desired behaviours, and also serve the traditional functions of attracting and maintaining a qualified workforce. Questions:-

1. Which factors, according to you, are prompting organizations to adopt a package instead of traditional salary?

2. Do you think package compensation is more suitable in modern globalised business? Can you draw some lessons from marginal productivity theory?

3. Do you think that the case supports the efficiently wage theory or bargaining theory? Give arguments in support of your logic.

4.Can similar type of strategy by adopted for remunerating other factors of production as well or not?

Case -2 Marks-16

Until Air Deccan entered the scene in 2003, there were only scheduled domestic carries in India, Indian Airlines, Jet Airways and Air Sahara. Air Deccan became India’s first Low Cost Carrier (LCC). Since then the dynamics of the game have changed drastically, soon followed Kingfisher Airlines, Spicejet, GoAir, Paramount Airways and Indigo. With Air Deccan’s low cost strategy experience having seen results, the concept is widely picking up as a strategy to rule the Indian skies. Jet Airways is developing JetLite (Air Sahara) as a value carrier with frills that offers low fares to fly on some of its domestic routes. The industry estimates forecasts that LCCs will have a market share of 70 percent by 2010. Full service carriers, on an average are losing a remarkable 1.5 percent share to LCCs every month. Currently all the LCCs put together have a market share of 37 per cent. As per industry estimates, international traffic will grow at a healthy rate of 15 per cent till the end of this decade while domestic traffic will continue to grow between 25 to 30 per cent annum. The aggressive international expansion planned by airlines in India is proof enough of this. Approximately, 16 per cent of Jet Airways’ turnover comes from its international operations. The airline is hoping to raise this to 50 per cent by the end of this decade to Rs. 9,000 crore, with plants to fly to every continent apart from Australia. The airline has even set up an international hub in the Belgian capital of Brussels. Others like Air Deccan, SpiceJet and Kingfisher have expressed their disapproval of government’s rule of not permitting carriers that have yet to complete five years in the business to fly abroad. As they see it as the main hurdle in their international ambitions at various platforms. Looking at the number of aircrafts ordered by airline over the past couple of years, one could gauge the carriers’ ambitious gameplan. Currently there are around 300 aircraft operating in the country. In addition nearly 480 aircraft are to be delivered till 2010 ordered by all carriers put together. According to Center for Asia Pacific Aviation (CAPA), India’s fleet will reach approximately 500-550 aircraft by the end of 2010. It is the profits or rather the lack of it is worrying the industry. All airlines together have posted a loss of approximately $500 million in the financial year 2006-07. Given the scale of losses that the industry is facing the consolidation process is set to continue. Independent carriers like SpiceJet, IndiGo, GoAir and Paramount Airways will faces a bigger challenge in the current scenario where Jet Sahara, Kingfisher-Air Deccan and Air India-Indian have emerged as the big three with substantial bargaining power. Industry analysts believe that co-operation or strategic alliances between the independent players id likely to continue in the coming few months, as the SpiceJet managing director Ajay Singh says, “We welcome any move to reduce maintenance costs and optimize resource allocation.” For example, by taking over Air Sahara, Jet Airways has saved up Rs. 1,450 crores on some of its infrastructure and manpower costs. The airline will now have as much as 40 per cent of all the parking bays in Mumbai and Delhi as also more than 40 per cent of total slots of fly in to Mumbai and Delhi. Post merger, the savings for Air India and Indian are also expected to be on similar lines. Questions:-

1. In your opinion what is the future of civil aviation in India? Will LCC dominate the domestic market? 2. Do you think that Jet Airways-Sahara merger will drive others to make similar moves so as to remain

in competition? 3. Collect more information of Indian and Jetlite and try to draw a payoff matrix for their prospective moves to venture into LCC segment. (Hint: the payoff matrix may be hypothetical but logically explained).

Case-3 Marks-16 IT industry is now considered as vital for the development of any economy. Developing countries value the importance of this industry due to its capacity to provide much needed export earnings and support in the development of other industries. Especially in Indian context, this industry has assumed a significant position in the overall economy, due to its exemplary potentials in creating high value jobs, enhancing business efficiency and earning export revenues. The IT revolution has brought unexpected opportunities for India, which is emerging as an increasingly preferred location for customised software development. Experts are estimating the global IT industry to grow to US $1.6 million over the coming six years and export to reach Rs. 2000 billion by 2008. It is envisaged that Indian IT industry, though a very small portion of the global IT pie, has tremendous growth prospects. Stock Taking The decade of 1970 may be taken as the stage of introduction of the Indian IT industry. The early years were marked by 75 per cent of software development taking place overseas and the rest 25 per cent in India. Export of Indian software until the mid-1970s was mainly to Eastern Europe, followed by US. Tata Consultancy Services (TCS) was among the pioneers in selling its services outside India, by working for IBM Labs in the US. The hardware segment lagged behind its software counterpart. With instances of export worth US$ 4 million in 1980, the software segment of the industry has shown an uneven profile. It was not until 1980s that vigorous and sustained growth in software export begun, as MNCs like Texas Instruments started to take a serious interest in India as a centre of software production. Destinations of export also underwent changes, with US dominating the main export main with 75 per cent of the exports. The IT Enable Services (ITeS) segment, however, had not emerged at this stage. It was also during the mid to late 1980s that compute firms shifted focus from mainframe computer (the mainstay of MNCs) to Personal Computers (PCs). In March 1985, Minicomp installed the fist ever PC at CSI, Delhi; this changed the entire industry for good. With the entry of networking and applications like CAD/CAM, PC sales soared in 1987-88, touching 50,000 units. From a modest growth in the mid-1980s, software export moved up to Rs. 3.8 billion in 1991-92. Since then, it grew at an incredible rate, up to 115 per cent in 1993.The hardware segment could also register an annual growth of 40 per cent in this period, backed by a surging demand for PCs and networking. Growth of the industry was also driven by the emergence and rapid growth of the ITeS segment. It sector’s share of GDP rose steadily in this period, rate of increase being the highest at 44.91 per cent in 2000-01. It was in the same year that the size of the total IT market was the bigger in the decade, at Rs. 56,592 crore. The overall IT market was also to increase till 2000-01, with the only exception of 1998-99. The domestic market also showed an overall increased till 2000-01, registering a spectacular CAGR of 50.39 per cent. Aggregate output of software and services also increased in this period, though at an uneven rate. Of approximately $1 billion worth of sales in 1991-1992, domestic hardware sales constituted 37.2 per cent (13.4 per cent growth over the previous year), export of hardware 6.6 per cent. During 2000-01 the growth in the hardware segment was driven mainly by PCs, which contribute about 58 per cent of the total hardware market. This period also witnessed the phenomenon of increasing share of Tier 2 towns and PCs in city sales, thereby indicating increased Pc penetration into the hinterland. PC shipment had increased by 35 per cent every year from 1997 till 2000-01 when it reached 1.8 million PCs. The commercial PC market saw a growth of 23.5 per cent, mainly due to the slashing of prices by major vendors. It was in 2001-02 that the industry had sharp fall in rate of growth of its share of GDP to 5.90 per cent from 44.91 per cent in pervious year. The total IT market also showed a fall in growth ate from 56.42 per cent in 2000-01 to mere 16.24 per cent in the next year, growing further at the rate of 16.25 per cent in the next yea. Software export was also affected, registering a low growth of 28.74 per cent and failed to maintain its growth rate of 65.30 per cent in the previous year. It got further lowered to 26.30 per cent in 2002-03. CAG of total output of software and services (in Rs. Crore) came down to 25.61 in 2001-02 and further to 25.11 in 2002-03. The domestic market showed a steep decline in growth to 2 per cent in 2001-

02 from an outstanding 50.39 per cent in 2000-01. It could, however, recover by growing t 4.11 per cent in the next year.

Table1: Indian IT Industry: 1996-97 to 2002-03

YEAR A B C D E 1996-97 9,438 3900 6,594 1997-98 12,055 1.22 18,641 6530 10,899 1998-99 14,227 1.45 25,307 10,940 16,879 1999-00 18,837 1.87 36,179 17,150 23,980 2000-01 28,330 2.71 56,592 28,350 37,840 2001-02 29,181 2.87 65,788 36,500 47,532 2002-03 30,382 3.09 76,482 46,100 59,472

Source: NASSCOM A: share of GDP of the Indian IT market, B: size of the Indian IT market (in Rs. Crore) C: software and service exports (in Rs. Crore), D: size of software and services (in Rs. Crore), E: size of domestic market (in Rs: crore)

Questions:-

1. Try to identify various stages of growth of IT industry on basis of information given in the case and present scenario for the future.

2. Study the3 table given. Apply trend projection method on the figures and comment on the trend. 3. Compute a 3 years moving average forecasting for the years 1997-98 through 2003-04. 4. What will be the forecasts for 2003-04 for exponential with a = 0.1?

Case -4-Making Magic: The Multiplex Way Marks-16 The middle class of India, form a virtual nonexistent entity on Independence, has gradually become more sensible, educated and demanding. The overall growth of the economy has given a tremendous trust to middle class, expected to grow by 5 to 10 percent annually. It has gown over 57 million by 2001-02 and is expected to cross 153 million by 2009-10 The average household income in urban India has grown at CAGR of 5 per cent over the last decade. Not only this,but the age profile of the India spenders is also undergoing a sea of changes. NCAER has identified five categories of households on basis of income which which is summarised in Table 1 below: Table 1 Classification of India Households on the Basis of Income Number of households (in millions) 1944-95 1999-2000 2006-07 ________________________________________________________________________ Very rich 1 3 6 Consuming 29 55 91 Climbers 48 66 74 Aspirants 48 32 15 Destitute 35 24 13 (Source: NCAER) Table 1 reveals the paradigm shift in Indian households over the last decade. The number of effective consumers is expected to exceed 600 millions by 2010. This big bang in consumerism in India is being seen as the driving force in the emergence of various new businesses, which aims at riding the high consumer tide. Availability of easy financing schemes is another aspect of the story: owing a house, or buying a car, or going abroad on a pleasure trip is no more a distance dream to the average India consumer! With the consumer’s composition gradually getting skewed towards the young, there is a greater tendency towards increased spending on composition. A very interesting piece of information is that average Indian household has increased its spending on movies theatres from 1 to 4.6 per cent of its disposable income. This amazing spurt in spending on entertainment has affected the quality and delivery on films as on industry. The single screen theaters with poor maintenance and inadequate infrastructure are gradually paving way for high tech multiplex with to as many as eleven screens, digitalized films and Dolby surround audio system. The industry is undergoing a swing, driven by consume behaviour. Report indicate that multiplexes account for 0.6 per cent of the cinemas, 2.3 per cent of the total screens and have a total capacity of more than two lakh seats. The average gross collection per multiplex is around Rs. 5.72 crore fetching about 29 to 35 per cent of the revenue for the film industry. India’s multiplex bandwagon has spread its tentacles beyond the metro to redefine entertainment in B and C class towns. While the first phase of the growth of multiplexes was in metros, now this growth is spreading to tier two and three cities like Lucknow, Indore, Nasik, Aurangabad and Kanpur. Top multiplex players like PVR, Adlabs Films, Inox Leisues, Shinagar Cinemas (Fame multiplexes), Fun Multiplex and Cinemax India are venturing to small towns across the country and redefining entertainment to the vast Indian masses. The multiplex business has rightly tapped the growth of consumerism in India as it has understood the pulse of the Indian consumer’s preference towards superior ambience, comfortable seating, air-conditioning and good quality snacks, even at the cost of paying a higher price. The average price of ticket in a conventional theatre is es.15-35, while a multiplex charges on an average price of Rs. 75-350 and consumer is willing to dish out this extra amount to enjoy the “complete” movie experience, which most of the traditional theaters could not render and are thus facing the fact o0f near extinction. It thus promises to take the moviegoers’ experience to a whole new level and giving a new dimension to watching movies at theaters.

Questions:-

1. What lesson can you draw from the above case regarding consumer behaviour? 2. Do you think change in consumer perception in middle class has been instrumental in emergence of

multiplexes? What can be the other reason? 3. Observe Table1. Which of the group, according to you, would have demand for multiplexes? 4. Would law of diminishing marginal utility apply to movie watching? Will this affect the growth of

multiplexes? Or can it be seen as a case for establishment of multiplexes? Give argument in support of your contention.