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Blue Ocean Strategy – A Critical Analysis of Application on Indian


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									Ninth AIMS International Conference on Management                                                January 1-4, 2012

      Blue Ocean Strategy – A Critical Analysis of Application on Indian

                                              Smita Shukla
                                     University of Mumbai, Mumbai

Blue Ocean Strategy which is much discussed strategic approach that needs to be followed by such companies
that wish to beat the market competition. The paper analyses the practical application of Blue Ocean strategy in
case of Indian companies. This paper also discusses the risk factors/negatives associated with the emergence of
application of Blue Ocean Strategy in India/worldwide.

                                                1. Introduction
According to the well-known authors and management thinkers, W. Chan Kim and Renee Mauborgne, ‘the only
way to beat the competition is to stop trying to beat the competition’. According to them, the entire market
universe can be divided into two oceans: Red Ocean and Blue Ocean. Red Ocean is representative of all such
industries/products which already exist and are thus representative of the known market space. Blue Oceans
denote the industries/products not in existence today. Blue Oceans thus represent the unknown market space. In
the Red Ocean industry boundaries are defined and well accepted. This means the existing competition is well
known in the market space and the players in the market try to outperform their rivals to get greater share of the
existing market demand. As existing market space gets crowded prospects for good profit and growth in future
are reduced. Products then lose their distinctiveness and become regular commodities resulting in cut throat
market competition thus turning Red Ocean more red or bloodier. Blue Ocean in contrast is defined by untapped
market space, opportunities for highly profitable growth and possibility for new demand creation. [1]

                               2. Understanding Creation of Blue Ocean
According to the W. Chan Kim and Mauborgne, most of the blue oceans that are created emerge within the
existing red oceans by expanding existing industry boundaries. However some blue oceans can also be created
well beyond existing industry boundaries. The companies which are located in the Red Oceans follow
conventional approach to beat the completion by building up defensible position or by out-competing the rivals
within the existing industry order. This, however many a times, leads to creation of situation in which supply
exceeds the demand in the industries which are involved in the competition leading to a scenario under which
the future market share and profits of the competing firms starts contracting. On the other hand companies
operating in the Blue Ocean do not try to fight competition but try to look beyond the existing competition. In
other words, instead of focusing on beating the competition the company focuses on making the competition
irrelevant by creating leap in the value for the customers and the company via creation of new uncontested
market space. Kim and Mauborgne call this as ‘Value Innovation’. [1]
  Value Innovation gives equal importance to creation of value and innovation. According to Kim and
Mauborgne, value without innovation tends to focus only on value creation on incremental scale. This means
that change leads to only some improvement in value but is not sufficient enough for the companies to stand out
in the market space. On the other hand, innovation without value tends to become a technological change or a
futuristic concept or a business improvement holding little market value in the sense that outcome of innovation
may be such that the customers are not be willing to accept and pay for the innovation. Thus, according to the
Kim and Mauborgne, value innovation occurs only when the companies are able to align innovation with utility,
price and cost. Value Innovation is thus such innovation which leads to reduction in cost of delivering the new
product and at the same time enhances the buyer’s value perception for the product. [1]

     3. Some Examples of Indian Companies that succeeded in creating Blue Ocean by
               extending the Known Boundaries of Red Ocean Market Space
Maruti Udyog Limited (MUL) was established in the year 1991 as a joint venture between the Government of
India and Suzuki Motors. The company launched first small car in India, Maruti-800 in the year 1983. Maruti
800 was based on Suzuki Alto Kei car. With the launch of Maruti-800, MUL was able to create a Blue Ocean
with the known four wheeler automobile market space. At that time the known or existing competition in four
wheeler market space in India was from only two companies ‘Hindustan Ambassadors’ and ‘Premier Padmini’.
Both the competitors were offering to the customers outdated technology and models. Thus Maruti 800 was
Ninth AIMS International Conference on Management                                                 January 1-4, 2012

successful in creating a revolution in the Indian car market. It was able to offer to the customers what they
wanted with suitable innovation in the Indian car market. Maruti-800 soon became the largest selling car in
India and the company (Maruti Suzuki India Limited) became the largest player in the Indian four wheeler
automobile market space. The company, till date, on account of the value innovation it introduced, is still the
company with the largest market share in the four wheeler automobile category in India. [5]

Air Deccan
Air Deccan, the first low fare-no frills airline line company in India, was established in the year 2003 by Captain
Gopinath under the company name Deccan Aviation limited. It initiated its operations with regular scheduled
flights from Banglore to Manglore and Hubli. It soon included other hubs as well in its regular flying program.
Air Deccan also became the first private airline company in India to include Airbus aircraft A320 in its fleet.
  Air Deccan ruffled feathers of existing market players by successfully offering Air fares as low as Rs. 500
plus taxes. Air Deccan created revolution in the aviation industry by making it possible for the common man to
avail aviation services on account of its low fair-no frill offer. Air Deccan changed the rules of the
game/competition in the aviation industry and forced other aviation companies to rethink on their strategies. [6]

ICICI bank was promoted by ICICI Limited, an Indian Financial Institution, in the year 1994 as wholly owned
subsidiary of ICICI. The shareholding of ICICI in the ICICI bank was reduced to 48% by a public offering of
shares of the Bank in the year 1998. In the decade of 2000, ICICI and ICICI bank in wake of emerging
opportunity to create Universal banking entity, decided to merge ICICI with ICICI Bank. The Process of merger
was completed by the year 2002, resulting in emergence of first Universal bank in India. Varied operations of
ICICI and ICICI and ICICI bank, whether wholesale or retail were thus brought under one entity ICICI bank.
ICICI Bank, thus became, first Universal bank in India which also revolutionized the concept of banking in
India. ICICI bank besides offering number of banking services under one umbrella also became first bank in
India that pushed the concept of internet banking very aggressively in the Indian market space. ICICI Bank had
an internet banking platform in place since 1994 which it used effectively to gain dominant position in the
Indian Banking space. It also became the first bank in India that focused aggressively on Retail loan portfolio to
build up business opportunities for the bank. On account of its stance and innovation like installing machines
like ‘Cash Acceptor’, its branchless banking initiative known as ‘B2’, its technology product like ‘Money to
India’ which now is known as ‘Money to the World’, its mobile banking initiative ‘iMobile’ etc, ICICI bank has
not only been able to become but also retain its position as largest private sector bank in India. [7]

TATA Motors
Ratan Tata shocked Indian automobile sector with his announcement to introduce in Indian market, a car costing
only 1, 00,000 Indian rupees. TATA Motors delivered its promise by subsequently launching basic version of
Nano at 1, 00, 000 Indian rupees on 23rd March, 2009.
  Nano is most inexpensive car in the world. The company was able to deliver its promise on account of the
considerable innovations it was able to introduce. Company was able to create a car model which used less steel
in the car body and engine. The company ensured that car design ensured ample seating space for four adults in
the car. The company was also able to ensure good fuel efficiency in the Nano. TATA Motors subsequently
filed for 34 patents associated with the design of Nano.
  TATA Motors instead of focusing on top 15% to 20% of Indian population (in terms of their income
capabilities) focused on that section of population that travelled by two wheelers and had low spending
capability. The company was able to meet the dream of Indian masses to own a four wheeler vehicle. TATA
Nano, in Indian market today is being hailed as ‘People’s Car’. At the time of launch, Nano was able to create
the same magic which was created by Maruti 800 post its launch in the year 1983. [8]
  Now, it is another story that post launch of Nano and its initial few months of being there in the market, Nano
is finding it hard to push up its sales further. For the same, the company is now coming out with innovative
marketing strategies and financing schemes in India.

Till early 2008, Indian mobile handset market was dominated by players like Nokia, Samsung, LG, Sony
Ericsson, Motorola etc. The market was ruffled by entry of Micromax. The company came in with product
offers that were in the range of Rs. 1, 500 to Rs. 2, 500. Initially the company focused on small towns and rural
market but soon it started to focus on building brand image and product portfolio which attracted all. Micromax
is now India’s third largest GSM mobile phone vendor. Following value innovations by Micromax helped the
Ninth AIMS International Conference on Management                                               January 1-4, 2012

company to beat the competition: (a) increasing the battery size thereby leading to long lasting battery power.
This innovation was extremely suitable for those areas in India which are suffering from erratic power supply
(b) Launch of dual SIM and dual reception (GSM and CDMA) handset in the market even before world leader
Nokia was able to do so in India (c) Introduction of high technology and good quality handsets, that is handsets
with touch screen application or handsets with Android application at very low prices in India, (d) Micromax
also introduced mobile phones with Qwerty keyboards in India at very reasonable prices (e) Building strong
dealer network. The company has an estimated over 75, 000 retailers in India today. The company offers an
estimated 5% commission to each of its distribution chain partners [9]. All the above have insured that a little
known Indian mobile handset manufacturing company has been able to beat the existing competition in India
via creation of Blue Ocean within known Red Ocean market space.

     4. Some examples of Indian Companies and their Products that represent creation
                          of Blue Ocean in Unknown Market Space
Shaadi.com was started by Anupam Mittal on account of his chance encounter with a marriage broker. Anupam
Mittal understood that success of a marriage broker was dependent on his/her ability to match matrimony
requirement of parties or families based far and apart from each other. A chance of good match making was
dependent on the ability of the marriage broker to travel and communicate far and wide. It was also dependent
on hi or her social clout. Mr. Mittal, thus, decided to use internet as a medium to do such ‘match making’
thereby removing the geographical barriers applicable on regular marriage broker or match maker. Today,
Shaadi.com is the largest matrimonial website in the world with over 20 million registered users. Shaadi.com is
a unique company and has succeeded in creating Blue Ocean in the unknown market space never tried before.

FabIndia is a unique retail venture in India based on ethnic Indian craftsmanship and clothing. FabIndia has
succeeded in creating Blue Ocean in unknown market space.
  John Bissell, who had worked in India as a consultant for the Ford Foundation, founded FabIndia in the year
1960 to showcase Indian handloom textiles to the world. He opened the flagship Greater Kailash (New Delhi),
store in 1975 to retail home furnishings. The store subsequently expanded into garments. At that time, the
business of FabIndia largely catered to overseas buyers. William Bissell, son of John, took over as managing
director of FabIndia in 1999 and today heads a network of 87 stores in 39 cities in India as well as its branches
in Rome, Dubai and Guangzhou with a turnover in excess of Rs 3 billion. FabIndia works closely with the
artisans and villagers to develop designs and colour palettes and to optimise production techniques and raw
material inputs. For the textiles, mostly natural fabrics and vegetable dyes are used. FabIndia sources its
products from around 22,000 craftsmen and artisans across India and has a plan to increase its supplier base to
100,000 in the next few years. Today FabIndia has expanded beyond textiles into furniture, stationery, pottery,
organic foods and body care products etc. All merchandise is sold under the single FabIndia brand and the
company owns all its stores as W. Bissell feels this helps the brand to maintain its identity. [11]

      5. Some Examples of Global Companies that succeeded in creating Blue Ocean in
                              Known/Unknown Market Space
There a several global companies which have been successful in creating Blue Oceans by expanding either the
known market boundaries of the Red Ocean or by creating the Blue Ocean in the untapped or unknown market.
Some examples of such companies are:

Apple Computers
On April 1, 1976, Apple Computer was born. Steven Wozniak, a high school drop-out who worked for Hewlett-
Packard and dabbled in computer-design created what later became the ‘Apple I’ computer. His high school
buddy Steven Jobs, also a high school drop-out, convinced Steven that the two should form a company to
market the new computer, which eventually took off in 1977 with the Apple II.
  There are very few companies in world that have an interesting past as Apple Computers. The company at one
point of time in its history, lost majority of its market share and was on the verge of liquidation. However, the
company came back by reinventing itself and the concept of computers. Apple is a company that has invented
many products that have revolutionized the entire computer industry. iPod, iTunes, iPhone, iPad etc are some
classic examples of success of Apple Computers. Under the leadership of Steve Jobs the company was able to
create many Blue Oceans within the IT Industry. [12]
Ninth AIMS International Conference on Management                                                 January 1-4, 2012

Amazon.com, founded by Jeff Bazo in the year 1994, became on of the first e-commerce companies in world
that achieved phenomenal success in market. The concept of Amazon.com was based on the idea of selling
books online. Amazon today is serving around 137 million customers every week. The revenues of the company
are over USD 34 billion currently. [13 and 14]

Larry Page and Sergey Brin started Google in the year 1997-98. The company has been able to maintain its
position of being one among the most powerful internet search engines available till date in market. Over the
years, since its inception, Google has been releasing a steady stream of innovative tools and services - some of
them developed in-house, many others bought in from start-ups: Gmail, Google Docs for word processing and
spreadsheets, Picasa for picture editing, Google Earth and Maps for location-based search and display of
information, Blogger, YouTube's video service etc. The list is seemingly endless. Above has ensured that
company that succeeded in creating Blue Ocean has been able to keep it blue for years altogether till now. [15
and 16]
  Other global companies which have received success in creating blue Oceans in the known or unknown
market space have been companies like Yahoo, eBay, Facebook, IBM, Samsung etc.

                               6. Challenge in front of Indian Companies
Though there have been some Indian companies, which have succeeded in creating blue oceans in the known or
unknown market space, still it can be safely stated that Indian companies are short of matching the success
stories that have been created by companies in the western or the developed markets. A major reason for the
same is lack of focus of Indian companies on innovation and research and development. Indian education
system and culture focuses more on theory than experimental learning. This tends to create risk-averse business
managers and companies. Further, many Indian companies, especially those which are family managed
businesses have an established authoritarian approach, whereby managers are expected to follow the orders of
seniors without asking too many questions. [2]
  Thus the biggest challenge in front of the Indian companies is to focus on innovation on the lines of their
western counterparts. Some global giants like CEMEX, Pepsi Frito-Lay, Hitachi etc have created position of
Chief Innovation Officer (CIO) in their companies and chief innovation Officer directly reports to the CEO
(Chief Executive Officer) of the company. CIO ensures that company maintains focus on innovation program as
part of the company’s strategy for growth. Indian companies thus also need to focus on value innovation to meet
the challenge of multinational companies like LG, Sony, Hyundai, IBM etc which are now extremely active in
the Indian market space.

                         7. The Challenge of Blue Ocean Strategy in General
The biggest challenge in front of the companies that have been successful in creating Blue Ocean is to ensure
that ‘Blue Ocean’ stays Blue. This is because success of products of such companies is generally replicated by
other companies over a period of time. To quote certain examples, dominance of Maruti-Suzuki was challenged
by Hyundai in the 1990’s. By the year 2009-10, Maruti also had to deal with the challenge posed by other car
companies like Volkswagen, Ford, GM, Nissan etc. Similarly, Deccan Airways was soon challenged by
companies/products like Spicejet, Kingfisher, Jetlite, GoAir etc. In the banking sector, ICICI is being challenged
by other new age private sector banks like HDFC Bank, Yes Bank, Axis Bank etc in terms of their technology
innovations and products. Success of Shaadi.com resulted in growth of similar websites like
Bharatmatrimony.com, jeevansaathi.com etc. Successful products of Apple Computers like iPhone, iPad, iPod
etc were quickly copied by other known companies in the market.
  This means that a company that has been successful in creating Blue Ocean has to ensure through regular
value innovations that market of its products continues to stay blue. In words of Kim and Mauborgne “Creating
Blue Ocean is not a static achievement but a dynamic process. Once a company creates a blue ocean and its
powerful performance is known, sooner or later imitators appear on horizon”. Thus biggest challenge for a
company that has been successful in creating Blue Ocean is to ensure that it continues to introduce regular value
innovation other wise there is always a possibility that the company will fail in the market soon. It is on account
of the above, that Orkut was challenged by Facebook and Facebook still stands tall while Orkut is now dead.

                                                  8. References
    1.   Kim, W. Chan and Mauborgne, “Blue Ocean Strategy: How to create uncontested market space and
         make the competition irrelevant”, Harvard Business School Publishing Corporation, 2005.
Ninth AIMS International Conference on Management                                            January 1-4, 2012

    2.    Ojha Nikhil Prasad, Mehrotra Pranay, Dwivedi Anurag, Chhabra Meenakshi, Goel Ritika, “India’s
          Most Innovative Companies”, Business Today (Web link: http://businesstoday.intoday.in/story/indias-
    3.    http://trak.in/tags/business/2011/03/21/top-innovative-companies-world-india/
    4.    http://timesofindia.indiatimes.com/tech/itslideshow/6305896.cms
    5.    http://www.marutisuzuki.com/about-us.aspx
    6.    http://www.deccanairlines.in/
    7.    http://www.icicibank.com/aboutus/article/article20.html
    8.    http://tatanano.inservices.tatamotors.com/tatamotors/index.php?option=com_content&task=view&id=1
    9.    http://www.themobileindian.com/news/793_Micromax:-Capitalising-on-innovation-and-pricing
    10.   http://www.merinews.com/article/interview-shaadicom-is-the-leading-online-matrimonial-
    11.   http://www.businessweek.com/globalbiz/content/oct2008/gb2008101_170582.htm
    12.   http://www.apple.com/pr/
    13.   http://www.cbsnews.com/stories/2005/07/05/tech/main706351.shtml
    14.   http://www.pcmag.com/article2/0,2817,2396634,00.asp
    15.   http://www.businessweek.com/magazine/content/06_10/b3974071.htm
    16.   http://news.bbc.co.uk/2/hi/business/7597599.stm
    17.   National Knowledge Commission Report, “Innovation in India”, 2007.


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