A case for new market entry – is this the right diversification?

I choose again to write this post about DxOLabs! My passion for photography keeps bringing me back here. DxOLabs – a company with interesting products (B2B and B2C)! They have three existing lines of businesses with good synergy. I had tried once before to visualize their business model & suggest two possible opportunities in this previous post (Business Model Canvas – validating a reading – DxOLabs.com).

I write again about DxOLabs (hereon referred to as DxO) as I noticed a job post on their website – which particularly drew my attention – “Product Manager – Consumer Devices”. A snapshot of the job post is here below

Product Manager - Consumer Devices
Product Manager – Consumer Devices

Although it looked an interesting opportunity to venture into, I decided– for my own sake – to analyze this move towards ‘Consumer Devices’!

The starting point: ‘what exactly are they trying to make’? With little public information available about DxO, the best starting point is the company itself – the job-description (JD) to start with.

“Consumer devices leveraging the connectivity of a mobile phone to create a stunning camera fitting in your pocket” – that helps me draw a mental picture about this consumer device.

  • Is a camera for sure
  • Will have an integrated connectivity-module
    • Like WiFi, to communicate with PCs/Laptops/Phones
    • Like (mobile-telephony) radio capabilities
  • Has to be compact – either that or there is a trend of increasing size of the pocket!
  • Will be sourced from white-label ODMs in China (given that Chinese language skills will help)
  • Might be sold in French(& English) speaking regions (say Europe to start with) or US & Canada (unlikely given the large geographic spread)  – as the JD necessitates exceptional French/English speaking abilities

In short, my hypothesis: It is a fantastic “point & shoot camera” with advanced capabilities, to be sold in the European market! I might be wildly off-target – but I believe it’s my best guess.

Starting with evaluating the target market – is this an interesting market to venture into?

The growth rate in this segment has not been encouraging. A measure I thought of using was the trend of possession of camera in households. I could pull this figure out for various regions, at various units of aggregation – country level or region level – using two examples, say Western Europe to depict region-level trend and Germany to depict a country level trend. (See two figures below. Source: Euromonitor)

Western Europe - Possession of Camera (% of households)
Western Europe – Possession of Camera (% of households)
Germany - Possession of Camera (% of households)
Germany – Possession of Camera (% of households)

Germany for instance shows a rather alarming trend of the forecast-ed growth rate being less than half of that in the recent past (0.4% vs 0.9%). While the absolute numbers may be less relevant directly, the relative figures are not encouraging. On a larger scale, even the Western European region shows minor slowdown in adoption (0.3% forecast vs 0.4% past CAGR). I believe this figure would be cumulative of ‘point & shoot’ and higher segment cameras like DSLR (which are witnessing higher growth). That is ascertained by some disheartening statistics about the point & shoot segment. Research here suggests that back in 2011 sales in this segment dropped by 30% in a year! That’s a sharp drop indicative of tough times ahead.

That leads me to talk about the most probable cause of this drop – pervasiveness of Smartphones & Tablets. The increasing computing power available in handheld devices and the fall in size & price of camera parts are added reasons for consumers to rely more on their phones than on yet another camera. The emergence of Compact Digital SLRs might be a good sign, but it remains to be seen how long before this segment reaches its maturity level? It also raises questions on my first hypothesis – is this ‘consumer device’ a Compact DLSR?

The most obvious substitute to a Camera is a Camera-phone. The threat from this substitute is extremely high – especially because Smartphones/Tablets allow instant social-media connectivity! I have personally on several occasions within Europe seen people holding up the Tablet to click a snap where I am fumbling with a bulky DSLR (albeit I love my DSLR for reasons of my own beyond the scope of this postJ ). There also is ample evidence to suggest that Smartphone vendors are upping the ante w.r.t photography capabilities.

The large variety of consumer devices at various price points from these several vendors raises questions about price-competition. An already crowded market with several established players is a tough one to crack into – and stay in profitably.

There is also a need for an appropriate distribution channel to market consumer devices. Retailers are a major sales channel for camera manufacturers, complementing their own direct & online sales channels. Each country (or region) has a set of dominant distributors & retailers.

Camera makers are thus facing competition not only from their industry peers, but also from Smartphone makers. For instance while Nikon & Canon might be players in camera industry, Samsung also leverages its camera capabilities into its Smartphone offerings. Others like Apple and HTC are the unexpected competition these camera makers now face.

Where does DxO Labs fit in this scheme of things?

  • Brand recognition! This is the most important challenge to overcome – while DxO’s software products are used by a set of professional photographers – this device is targeted at a different segment.
  • The increasing consumer inclination to use Smartphones as their compact photography companion is a trend that should keep DxO on its toes during this market entry
  • Increased investments by Smartphone vendors in camera technology embedded in the phones will be a challenge to match – a case of asymmetric resources
  • Multi-point competition is an aspect to be managed cleverly, particularly because DxO is a technology supplier to some of the consumer electronics vendors; introducing its own device will pitch DxO as a direct competitor to their current partners
  • DxO will have to build its B2C and distribution-channel capabilities; it is quite different licensing hardware ISP to businesses vs. selling a consumer device to an end consumer
  • DxO will have to deal with margin pressures when dealing with consumer electronics retailers – else focus majorly on going the online-sales channel

Why would DxO want to enter this space?

A few reasons I can think of are below:

  • With its imaging-hardware capabilities, perhaps DxO believes it can market their own consumer device and grab a piece of the current pie
  • DxO’s online presence through DxOMark.com and its photography software could help build some brand recognition – but addressing the right segment is crucial! Scaling down their imaging software capability and plugging it onto this device can help it mimic Instagram or Vine… but there are miles to go before DxO can leverage social media to gain traction.

That makes me wonder – how about tying up with its regional brethren Fotopedia.com and provide some interesting effects to the vast pool of images, or maybe explore options with Flickr to gain traction in Europe.

Nevertheless, the choice of target market is extremely tricky – unless DxO has a bag of tricks in place already that is deeply concealed from the public domain, it will be tough ride in the long run!

Bank Guarantee to finance the student loan @ HEC

Well this blog has become more of a place for me to scribble, than to practice and improve writing skills 😦

Nevertheless, the next September intake is due to arrive at HEC in a few months! I am sure they would have several questions on their mind! So after Satyendra messaged me with one such question, I quickly got onto this post (especially since not many have dealt with this aspect and I had been thinking of writing this for the past three months. Thanks Satyendra for the nudge)

Intended Audience: Candidates from India who want to take a student loan from France.

Others, read on if you find any similarities with the system in your country, else feel free to drop out mid-way.

Disclaimer: I did attempt this thing. Got the guarantee issued from India. But, finally backed as by the time I learnt all the aspects of this, I ran out of steam and time!!

Why take the student loan from a French Bank (say BNP Paribas)?

  • They offer a rate of only 3% as opposed to the likes of 14% APR in India!
  • A maximum tenure of 10 years with a maximum moratorium period of 3 years, as opposed to a maximum tenure of 7 years in India

What does BNP Paribas (Jouy-en-Josas) need to process this?

  1. A guarantee from a French resident that you won’t run away. And if you do, the guarantor will pay up! OR
  2. A guarantee from a Bank in India that will pay up(again) if you run away and default on your payments to BNP. If the loan is intended for 5 years, the guarantee should  be for 5 years (not lesser) [Edit: June 28, 2012: The guarantee is sent as a SWIFT message and has a format defined by BNP Paribas. You need to get in touch with BNP Paribas, France and procure the sample format to be forwarded to the Bank in India. Check the HEC website financing section for contacts details]

Beware: The process moves very slowly in Jouy. Especially since the BNP branch we deal with is in Jouy-en-Josas (which is quite small) while the international Bank guarantee (BG) is received at a head office somewhere in Paris. Yes you should be prepared to know that email travels slower than snail-mail!

I have no clue how option 1 works! I have tried option 2, and that’s what I will elaborate on

Which Banks in India can help you ? What is the product?

What do you need to ask the bank for?  An “International bank guarantee”

Stressing on the ‘International’ is essential as it changes the rules of the game. Be prepared, you would be surprised to know that barely any managers know the concept of “International Bank Guarantee”

Which banks in India do this? I tried this with: ICICI, HDFC Bank, SBI, Indian Bank, Bank of India etc etc. I got positive responses from SBI, ICICI, HDFC Bank. Chances improve if this is done in major cities (I would make that Metros + Bangalore + Hyderabad)

What do the Indian Banks ask in return?

To issue the International BG they would need collateral in either of two forms below:

  1. In full cash (in the form of Fixed Deposits)!! They must be crazy! But it is what it is!
  2. In cash + property (Almost impossible to get because of the “International” thing)

Now the math! (Put in your own numbers, this is just an example)

  • Desired Loan Amount: 30000 Euros
  • Exchange Rate: INR 70/-
  • Equivalent Guarantee Amount in INR: 21 Lakhs
  • Duration of BG: (say) 10 years
  • Collateral: Banks usually ask for at-least 110% collateral cash collateral. Say 120% here.

Caveat 1: The wonderful trend between the Euro and INR has screwed this up, and banks now ask for higher % collateral to cover their risk. (I had negotiated a 120% when banks said 130%)

Caveat 2: The first caveat also makes banks say, that they need higher collateral % since the BG is locked for several years, and they wouldn’t know which direction the Euro would move! To this, I would say: “Lock my FD for those many years, and let the interest accumulate”, in case of an unfavorable movement, your risk is covered to some extent”.

Ok now, the costs!

The Commissions / Fees

  • Banks usually charge about 2 to 3% per annum of the amount of guarantee.
  • At 2%, here, the fee would be (2% of 21 Lakhs) x 10 (the no. of years) = 4.2Lakhs
  • SBI charges 1/4th the commission % if collateral is full cash. So let’s make this 1.05L

Caveat 3: Ask the bank to issue the BG for shorter duration (say 1 yr or 18 months) on a renewable basis. The approval process for shorter duration BG is a lot simpler and moves faster as against a 10 year BG request. Advantage of doing that, upfront collateral % can be negotiated downward, but subject to annual revision depending on exchange rate. Also, the upfront fee maybe locked up as an FD and the bank can be told to break this up each period to get their commission and re-issue the BG.

So BNP Paris still gets an annual BG with a commitment to renew the BG for 10 years. You earn interest on the 4.2L as an extra bonus.

Total Money to be put in the FD: (21 x 1.2) + 1.05L = 26.25L!

If I had this money, why don’t I pay the school right away?

Well that’s your choice, but here’s the spicy twist to the tale:

This 26.25Lakh fetches you an interest ~ 9% p.a (as of June) in India in a fixed deposit instrument. You pay the commission at 0.5% and an interest to BNP of 3%. Net you earn 5.5% on this huge amount. (Keep in mind taxes and TDS to fine tune).

In my opinion, it is a good option to use, but bear in mind the RISK: Exchange Rate! It has played a big spoil sport in the recent past. So do the math right and if you have additional resources to put in in case the exchange rate becomes more unfavorable.

Why didn’t I do it eventually?

I had paid the commission for only one year, and BNP refused to accept that guarantee for the loan of 7 years. By the end of it, I had run out of energy to do this. I was working with SBI (Indiranagar, Bangalore). And yes, set your expectations straight, SBI is faster than BNP is!

Have others done it before? Yes there are people who have done this!

Now, it is clearly your call!

Please do share with others if you manage to pull-it-off! In fact, try pooling in multiple candidates together in the same city, gives you more bargaining power with the bank!

All the best!

“Veni, vidi, vici” (I came, I saw, I conquered) – reportedly written by Julius Caesar in 47 BC as a comment on his short war with Pharnaces II of Pontus in the city of Zela. There was something that reminded me of this when I met Jean-Christophe Prunet, Managing Director, Rohde & Schwarz.

I had the opportunity to meet him courtesy the TEC On-Campus program in HEC. It wasn’t particularly this exact statement; I’ll present the right variation in shortly.

Let me first elaborate on this abstract idea of ‘TEC OnCampus’. The ‘TEC OnCampus’ program draws its inspiration from vistage.com (formerly known as TEC – The Executive Committee). To quote vistage – “It’s a fact of business today: Everyone’s working so hard there may be no time to step back and think, bounce ideas off your peers, or get wise counsel from an experienced mentor”

In short: Sharing with peers and being coached by a mentor from the industry. The program started off on an unconventional note – knowing our peers as we never knew them before. A realization dawned upon each of us: We all have had our share of happy and sad moments!

Our mentor in this journey is Bernard Bismuth, an industry stalwart in France, a successful entrepreneur since his early days. And thanks to Bernard and HEC, we have the privilege of sharing the lunch table with several achievers from the business arena.

Now, rewinding to Julius Caesar let me present a more appropriate analogy: “venit, audit, vicit” (he came, he listened, he conquered)

Yes, Jean-Christophe is an advocate of listening skills. He spent half a day with us, sharing his journey through life. And what came out most dominant was ‘the importance of listening’.

What I now share below are all takeaways from our discussion and interactions with Jean-Christophe. I am in no way an expert in this field.

Needless to say, listening to what others have to say has multi-fold benefits. We gain more knowledge than we already have. A discussion on a topic most familiar to us can also unravel something new for this. This is because of the exposure we get to ‘another perspective’. The more we listen and absorb, the more we’re prepared to form an opinion. A leader is expected to be a ‘know-it-all’ person. The best way for a leader to reach that stage is to garner diverse information and knowledge by listening to others. With the huge wealth of information at his disposal, a leader is therefore also better prepared to take on unanticipated challenges.

Jean-Christophe’s focus on ‘listening skills’ was particularly interesting because of the varying influences listening can have.

Listening skills impact decision making. He believes that one should be a 100% sure about the rationale of a decision (that can be easily achieved by keeping the ears and mind open to ideas). On the other hand, no-decision is better than an unsure-decision. In such cases, it often happens that the situation unravels itself in the days to come. This span can be better used to study the emerging trend and get additional clarity setting the path of the decision making process. Gut-feeling could also play a significant role sometimes. However, a strong gut-feel will only be strong-enough once one has enough knowledge in the domain under discussion. Decision making must also meet certain guidelines

Decision making process within an organization needs to be competence based than relationship based. This also sends a clear message within the organization about the expectations of the management. The fairness of this approach is often appreciated. This leads to how organizations behave when it comes to ‘people’ – what does the manager and the engineer bridge the gap?

People Management! The buzzword these days is more than a mere buzz! It defines how we influence our teams. An interesting insights shared was – a manager should prioritize his meeting-commitments with a technician in the firm, over his unscheduled meeting with the immediate boss. Seems unbelievable at first – my boss is the first person to please! BUT, I’ll have several occasions to attend my boss’s unscheduled needs and meetings, but the technician in my company deserves to be given undivided attention when promised. This helps strengthen relationships. People realize that we value our team equally, if not more than the boss’s orders (That’s too crudely put, but I hope the message is clear?)

Detecting Potential in people: the ability to figure out what a person is capable of. Someone not doing his job right is not essentially incapable. He might just be the right guy in the wrong place. To enable people to advance in their career needs us to be open-minded and alert. There are situations when your choice of a candidate for a job may not seem right to several (including the candidate himself), but if we are confident that the person can pull off the task with his under-utilized skills, then we must give him a chance.

So what’s the ‘Next Step’ like ? Often in our careers we are faced with dilemmas about the ‘next step’. When an opportunity presents itself, a lack of experience in the new role but the belief in our ability will help us move ahead. While faith in our own capabilities will be a core driver, the knowledge gained by listening will be the true navigator.

A final word of advice from Jean-Christophe – “You must try your hands at sales, at least once. Being a leader in the company, you are the first sales person. Understanding the pulse of customer expectations and behaviour will prove mighty useful in the leadership position”

It was a fabulous day of interaction. Each of us had several takeaways from this. A person so high up the ladder also finds time to travel and enjoy what nature has to offer. He is a photography enthusiast and has an amazing collection of images at http://bit.ly/w4SwQb

Our day in pictures : http://on.fb.me/xSdRbb