Diagnoses: Bajaj Electricals—Lighting Up the Future Case Analysis

Business-Level Resources

The business environment of Bajaj Electricals Limited (BEL) is rapidly evolving and getting competitive. Thus, the case offers a unique context to explore BEL’s internal resources and capabilities, which may help Mr Shekhar Bajaj navigate these turbulent times. The concept of a firm’s resources as a source of a competitive advantage was initiated by Penrose’s (1959) seminal work, where she considered the firm a collection of physical and human resources. A firm’s resources can be tangible (e.g., physical assets of BEL) and intangible assets (e.g., the reputation of BEL). Barney (1991) proposed the VRIN framework to identify resources that can generate above-normal returns over an extended period, the sustainable competitive advantage. VRIN framework pointed out four crucial aspects of a resource: value (V), rareness (R), inimitability (I) and non-substitutability (N). In the context of BEL, the VRIN framework allows exploring which resources would ensure sustainable competitive advantage to BEL.

The case also allows investigating the finer nuances of the inimitability aspect, such as path dependency or causal ambiguity. For example, the legacy of BEL is history dependent, and the company has accumulated reputational resource over the last eight decades. It will be difficult for its relatively younger competitors to earn the same overnight. For instance, Mr Jamnalal Bajaj, the founder patriarch of the Bajaj Family, was close to Gandhiji, and he was closely associated with the Indian national movement. Consequently, ¹

[the] ‘Bajaj family … naturally imbibed the values of nationalism, nation-service, and ethical business practices … The Bajaj family, up to the current generation, has given immense importance to learning and seeking wisdom, which can then be applied to higher purposes that benefit the society and country.

In the words of Rahul Bajaj, the former Chairman Emeritus of the Bajaj Group,

We have a legacy that can very easily be broken, but one that’s very difficult to rebuild.

Barney’s VRIN framework (1991) also allows identifying whether a resource is specific to a business segment or relevant across business segments. For instance, resources such as the pan-India distribution network or vast service network of BEL are valuable, rare, not easy to imitate and non-substitutable. More importantly, it may give them a competitive advantage across business segments, such as light and fan business, home comfort items (e.g., room heater, air cooler) and cooking essentials (e.g., gas stoves, induction cooker or microwave). However, this pan-India distribution network will not create much value for their Engineering and Projects (E&P) division. On the contrary, the brand perception of BEL would give them a competitive advantage for all business segments. Some resources are generic (e.g., brand, distribution network or vast service network) for their consumer products. On the contrary, some resources are specific for a particular business segment. Thus, the intriguing question is whether the resources of B2C businesses will create value for their B2B businesses. Similarly, exploring whether resources specific to one B2C vertical will be relevant for another B2C vertical would be interesting. For instance, resources, such as in-house fabrication or competence in illumination projects and power plants are specific resources for their E&P division, that is, B2B business. Contrarily, their expertise and experience in the lighting business will create value for the large-scale projects (e.g., the prestigious Wankhede Stadium illumination project for the World Cup in 2011) of the E&P division. Thus, generic resources of B2C businesses can create value for B2B businesses. Hence, the BEL case allows probing the resource continuum framework of Collis and Montgomery (1998). It would be interesting to explore the resources of BEL from the ‘scope of business’ perspective. Subsequently, the case also allows us to delve deeper, from the perspective of Mr Shekhar Bajaj, what would be the coordinating mechanisms (transferring or sharing of resources) or control systems (financial control or operating control) for BEL (Collis & Montgomery, 1998). Finally, it is also crucial to explore whether the policies and procedures of BEL can support the exploitation of its valuable, rare and costly-to-imitate resources.

Group-Level and Family-Level Resources

In addition to the discussed business-level resources and capabilities, group-level resources can also enhance the competitive advantage of companies such as BEL, an affiliate of a family-owned business group. To unravel the competitive advantage of companies such as BEL, it is essential to understand these aspects. It is also necessary to consider the finer nuances of developing economies where market institutions are relatively less efficient than developed economies, and a few family-owned conglomerates dominate the corporate landscape. These family-controlled business groups are a set of legally independent firms engaged in diversified business lines, controlled by a central authority—mostly the controlling family, and linked by complex socio-economic ties. These groups create inter-firm network structures through intricate crossholdings and interlocking directorate and use this governance structure for facilitating various internal business transactions and resource sharing (Khanna & Palepu, 1997). Developing economy business groups encourage managerial talents to work and gain experiences in different group companies. The controlling authority, that is, the family, facilitates managerial talent sharing through a non-market mechanism among group affiliates. For instance, Mr Shekhar Bajaj is not only heading BEL but also is a board member of other Bajaj group companies such as Bajaj Holdings & Investment Ltd. or Bajaj Global Ltd. Similarly, other Bajaj family members, such as Madhur Bajaj, Rajiv Bajaj or Pooja Bajaj, are also the member of BEL Board of Directors. This creates value when managerial talents are scarce in the external labour market.

Sharing financial resources through an internal capital market can also create value for an affiliate. For instance, if BEL intends to enter new segments, Bajaj group can allocate financial resources to these new ventures. In the Bajaj group, Bajaj Holdings & Investment Ltd. (BHIL) primarily act as an investment company. BHIL supports new business opportunities, and it has strategic stakes in all significant Bajaj Group companies. These group-level cross-investments signal credibility and boost the borrowing capacity of an affiliate. Additionally, the reputation of the Bajaj Group in the capital market may give affiliates preferential access to external capital markets. On the contrary, a stand-alone firm might face difficulties raising capital to pursue growth opportunities. Generally, business groups appropriate quasi-rent by accessing scarce and imperfectly marketed inputs. Thus, considering Bajaj Group as a portfolio of heterogeneous resources can help us to probe whether sharing group-level resources, through internal capital or the labour market, can positively impact the sustainable competitive advantage of BEL.

It is also worth considering that Bajaj Group, like other Indian business groups, is a family-owned business group. In these groups, family members often get involved in the business at a young age and have high exit barriers. Senior family members impart hands-on training to junior family members. For instance, the BEL website says, ²

Thus, family businesses ‘have unique access to a stable and loyal human resource base, leading to family-based human asset specificity’ (Verbeke & Kano, 2010, p. 1179). Unlike the market mechanism, the governance structure of family business groups efficiently shares resources with high asset specificity, such as family-based human assets, within affiliates. Additionally, it may be worth considering the socioemotional wealth of family businesses, that is, the family’s ‘stock of social, emotional, and affective endowments vested in the firm, such as the opportunity to pass the firm on to future family generations’ (Gomez-Mejia et al., 2018, p. 1370). From the socioemotional wealth perspective, expanding the existing business segments or entering new business segments will allow the Bajaj family to sustain their legacy of the last eight decades and enhance their reputation and social identity. Thus, it would be interesting to investigate the dilemma of Mr Shekhar Bajaj through the lens of socioemotional wealth.

Strategic Sweet Spot for BEL

BEL has a diversified business portfolio, and a broad classification such as consumer products might be misleading. The major competitors across their wide range of consumer products are different. For instance, BEL faces stiff competition from companies such as Havells or Usha in their fan business. On the contrary, Crompton Greaves and Philips NV have a significant presence in lighting and consumer appliances. More importantly, the competitive positions of these companies also differ across verticals. For example, Philips NV has a substantial edge over BEL and Crompton Greaves in the lighting and luminaires segment. However, in the consumer appliances business, the gap is close between BEL and TTK Prestige, the market leader. The case also reveals that some smaller players can be formidable competitors in the coming days. For example, in the consumer appliance section, Crompton Greaves has increased its revenue by 2.5 times from 2011 (₹90 crores) to 2015 (₹230 crores). On the contrary, BEL has registered a growth of around 1.4 times (from ₹811.4 crores to ₹1113.6 crores) during the same period. In addition to these players, global players such as LG and Samsung also have a significant presence in products like the microwave. Thus, the business environment of BEL is exceptionally competitive and dynamic.

Based on the above observations, the obvious question is that what would be the way forward. What strategy will help BEL to outperform its rivals? The challenge for Mr Shekhar Bajaj is to find a strategic sweet spot considering its resources and capabilities, competitors’ offerings and customers’ needs. Collis and Rukstad (2008, p. 9) argued that ‘the creative part of developing strategy is finding the sweet spot that aligns the firm’s capabilities with customer needs in a way that competitors cannot match given the external condition – factors such as technology, industry demographics, and regulation’.

Thus, to identify the strategic sweet spot of BEL, we need to jointly consider BEL’s internal strength, as well as the resources and capabilities of its competitors and consumers’ need. For example, to identify the strategic sweet spot of BEL in the lighting business, we need to consider the resources of BEL, such as the brand perception of BEL, their vast pan-India distribution network, years of experience in general lighting service (GLS), fluorescent tube lamps (FTL), and compact fluorescent lamps (CFL) products. Similarly, we also need to consider the brand reputation of Havells and Philips. Moreover, Philips has an edge in patenting and licensing. Finally, environmental factors such as the intention of the power ministry to replace incandescent lamps with LED-based lighting or large-scale rural electrification programmes will also play a crucial role in identifying the strategic sweet spot for BEL’s lighting and luminaires business. The case offers a detailed narration of the segment-wise business constraints. Hence, it would be interesting to consider these challenges, in conjunction with the exhibits, to analyse the segment-wise competitive advantages of BEL.

Epilogue: The Swing of the Pendulum?

Recently, BEL experienced a decline in its revenue due to nationwide lockdown during the pandemic. However, BEL has bounced back in the very next year. According to the 2020–2021 BEL annual report, ³ the profit before interest and tax (PBIT) has registered an astonishing growth from ₹192 crores in 2019–2020 to ₹305 crores. BEL reduced its debt from ₹957 crores (in 2020) to ₹464 crores (in 2021), consequently improving its debt–equity ratio.

In addition to the overall company-level performance, BEL’s consumer products division has aggressively launched new products and enhanced its marketing activities to overcome the setback of the previous year. Consequently, this division has registered the highest-ever PBIT, and more than 70% of BEL’s revenue came from consumer products. ⁴ Similarly, the E&P division successfully executed prestigious large-scale projects and expanded its geographical footprint to a new country, Zambia. The 2021 annual report says that BELs products occupy No. 1 position in 3 out of 12 high potential categories such as mixing appliances, water heaters and irons. Also, it occupies the No. 2 position in the overall B2B illumination segment and a leading position in outdoor lighting and high mast and poles segment. Interestingly, BEL was one of the most searched Indian brands on various e-commerce platforms.

Thus, the puzzling question is that whether the recent growth stagnation was just the swing of the pendulum, or should BEL do something drastically different. Will past winning formulas give them a sustainable competitive advantage in the coming days? Or does BEL need to adapt to the ever-changing business environment? Probably, BEL needs to maintain a delicate balance between exploration and exploitation. BEL should explore new growth opportunities by adding new products and new markets. Simultaneously, BEL should not ignore their strengths, and they should periodically review and augment their resources and capabilities. As a leading player in the Indian market, BEL also needs to expand its geographical footprints. However, the dilemma for Mr Shekhar Bajaj will be whether to focus on other developing economies where business conditions would be similar to the Indian market. Or should BEL aim for the developed markets to leverage its access to low-cost resources?