4 - One More Vision

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SINGH GILL

T size="2">his is one of the few fairy-tale success stories of the country being used as a
manufacturing base for world-class IT products. The story starts in 1985, in the Madras
Export Processing Zone (MEPZ), with a company called Modular Electronics. Created by ML
Tandon of Tandon Group fame, it was buoyed with his vision of the country becoming a
global manufacturing base for IT products. The company was created for export of disk
drive sub-assemblies for international markets. While ML Tandon continued to create
multiple manufacturing plants from multiple locations, it was Modular Electronics, ten
years later, which attracted the attention of JTS Corp., USA.

As a late entrant into the global Hard Disk Drive (HDD) market, JTS
Corp. was on a reverse strategic hunt. In order to build marketshare in the
almost-saturated global market, the company had to desperately compete on lower
manufacturing costs. That was alt="https://img-cdn.thepublive.com/filters:format(webp)/dq/media/post_attachments/02ff0926c3623d27cfcfe79d08b0250900064daa18270ccd77bf3a57be62a046.jpg (11733 bytes)" border="0" hspace="2" vspace="2" align="right">when
ML Tandon’s technology acquisition trips and JTS Corp.’s venture-abroad efforts
intersected. JTS Corp. did not hesitate and proceeded to invest a minority stake in
Modular Electronics in 1995. The company was renamed JTS Techonology Ltd.

The fresh capital equity, cutting-edge technology transfers, and product
positioning in the global markets made JTS Technology the largest hardware exporter from
the country by 1997. From a measly turnover of Rs 8.5 crore in 1995-96, the company
scorched its way to a massive Rs 622 crore in 1996-97, smashing through the DQ Top 20
ranks to perch itself at the # 3 slot. A total of 1.04 million HDD units were shipped into
the global markets that year.

With success of this nature in short notice, JTS Corp. decided to
increase its equity stake in the company in 1997-98 to its present 98.5 percent. However,
the global HDD markets in 1997-98 saw the build-up of an oversupply position, with HDD
vendors unable to match the shorter inventory cycles of PC shipments. Also, fueled by
plunging demand levels across the entire South Asia, global HDD vendors reported losses in
their profitability. However, JTS Corp. chose to slash production, reduce inventory levels
from days to hours, and close the year with a visible loss in revenue, but a healthier
bottomline performance. In 1997-98, JTS Technology reported a turnover of Rs 593.6 crore,
a drop of 4.7 percent over the previous year. This is still a commanding figure in the
Indian IT industry and enough to keep it convincingly at the # 4 slot in the DQ Top 20.
The company shipped 1.27 million units in 1997-98, a growth of 22 percent over the
previous year.

The manufacturing plant at the Madras Export Processing Zone (MEPZ) is
the sole plant for JTS Corp and supplies HDDs for its complete global distribution
requirements. The daily inventory planning and equally short delivery turnaround is one of
the critical success factors for the company’s profitability. While the MEPZ plant
gives the benefits of lower costs to its principal, there is no let-up in the internal
quality standards. Published independent test reports indicate JTS HDDs to be amongst the
top three most reliable drives.

JTS Corp. has set for itself an ambitious target of 5 percent of the
global HDD market by the year 2000 from the current 0.9 percent share in the 3.5 inch IDE
HDD market. With an estimated demand of 230 million HDDs by the year 2000, according to
IDC, JTS Corp. would have to produce 11 million units in that year. While JTS has enhanced
its production capacity from 2 to 3 million units, scaling it to 11 million units in the
next two years seems unlikely. What appears to be more limiting is the capability to
market those 11 million units. With the US and European markets insufficiently tapped, the
company is faced with the uphill task of channel development, both in these markets as
well as untapped ones. The 5 percent share appears elusive.

With the recent sops of exporter obligation to the domestic market, JTS
Technology has now decided to tap this market. The biggest hurdle for HDD distributors in
the country has been the replacement of defective products, involving re-export procedural
clearances. JTS technology has exploited its unique position of a local warehouse and test
and repair center by introducing its Express Program, which commits a 48-hour replacement
cycle for its channel partners. While Priya International, the JTS distribution partner,
faces considerable channel competition, the singular benefit of the Express Program is
likely to swing channel loyalty in its favor. On that count, JTS may find domestic market
expansion easier than global markets.

With the urgent need to bring further economies of scale through market
expansion, JTS Technology may soon find itself empowered by its principals as an
independent business unit. The logic: to enable faster decision-making and reduce
operational costs while using the MEPZ unit as another global launching plank. However,
with current turmoil in the global economies, the same vision of ML Tandon—that of
making India an IT manufacturing base—cannot drive JTS Technology or its principals
much further. The new vision required now is one of survival and long-term cushioning.

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