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Is Mediation Gaining Popularity in India?

Written by Om Daga pursuing https://lawsikho.com/course/diploma-advanced-contract-drafting-negotiation-dispute-resolution offered by Lawsikho as part of his coursework. Om is working as Company Secretary at Jekay International Track Private Limited, Kolkata.

Concept of Mediation

Simply speaking “Mediation” is a process of dispute resolution in which one or more impartial third parties with his specialized communication skills and negotiation techniques intervenes in a conflict or dispute with the consent of the participants and assists them in negotiating a consensual and informed agreement. From Lord Krishna mediating between Kauravas and Pandavas in the Mahabharata, to family elders resolving domestic issues, to panchayats providing community mediation, there exists a strong culture of mediation in India. Mediation is, in fact, the oldest and historically most effective way that societies have resolved their differences outside of resorting to the courts or violence. Today, it is has become the new buzzword in law.

Development and Evolution of Mediation in India

The first mediation training session was conducted in Ahmedabad in the year 2000 by the Institute for the Study and Development of Legal Systems (ISDLS), a non-governmental organization based in San Francisco, California, USA. It was followed by a few advanced training workshops conducted by a public charitable trust “Institute for Arbitration Mediation Legal Education and Development”, settled by two senior lawyers In Ahmedabad.

The Chief Justice of India formally inaugurated the Ahmedabad Mediation Centre on 27th July 2002. The importance of mediation and the need to implement Sec. 89 of Civil Procedure Code, 1908 was the agenda. These conventions and training sessions continued in order to get the concept of mediation and arbitration in the main stream for dispute resolution.

In order to be formally trained as a mediator in India, an individual must undergo a 40-hours’ training programme and conduct 20 mediation sessions under the Mediation and Conciliation Project Committee (MCPC). Since the early 2000s, 52 judicial mediation training programmes have been facilitated in various parts of the country. About 869 members of the judiciary have undergone the 40 hours of training.

Types of Mediation

Mediation in India is divided into three categories which are commonly followed:

Court annexed mediation

This applies to cases which are filed in the court or are pending in the court.The mediation services are provided by the court as a part and parcel of the same judicial system.The Rules framed by Supreme Court and High Courts in pursuance of Section 89 of Civil Procedure Code, 1908 deal with Court-annexed mediation. The mediation centres have been established by the Supreme Court, High Courts and several district courts in the country and services provided to the litigants is either free of charge or minimally charged. The process of mediation is conducted within the court complex.The settlement arrived at are recorded in a compromise document and then sent back to the Court for a final decree and no appeal lies through Court-annexed mediation.2

Court referred mediation

It applies to cases which the Court would refer for mediation and aregoverned by the rules framed by High Courts in pursuance of Section 89 of Civil Procedure Code, 1908 and the Legal Services Authorities Act, 1987 (LSA). In terms of legal position laid down by Hon’ble Supreme Court of India in 3Afcons Infrastructure Ltd. and Anr. V. Cherian Varkey Construction Co. Pvt. Ltd. and Ors., (2010) 8 SCC 24, a dispute referred for mediation by the court will be deemed to be a reference to Lok Adalat and the provisions of LSA shall apply as if the dispute were referred to a Lok Adalat under the provisions of LSA. The control and jurisdiction over the matter is retained with the court and the mediation settlement reached before mediator is placed before the court for recording the settlement and disposal of matter. Court applies the principles of Order XXIII Rule 3 of CPC and pass decree/order in terms of the settlement in regard to the subject-matter of the suit/proceedings.In regard to the matters/disputes which are not subject-matter of suit/proceedings, the court will direct that the settlement shall be governed by Section 21 of Legal Services Authority Act, 1987and shall be final and binding on all the parties to the dispute and no appeal lies to any court against the award.This type of mediation is frequently used in Matrimonial disputes, particularly divorce cases.

Private Mediation

When the parties undertake mediation individually, independent of Court proceedings, it is termed private mediation which can be used for disputes pending in Court as well as pre-litigation disputes. There is no law governing private mediation in India. 1In private mediation, qualified mediators provide their services on fee-for-service basis to the various stakeholders viz., the Court, the governmental sector, members of the public and business houses. Private mediations are being availed of by parties to settle high value commercial and family disputes. As legislation is not currently available to provide enforceability to a settlement at private mediation, the settlement terms are executed as a contract u/s 74 of the Arbitration and Conciliation Act, 1996 which are binding and has the same validity as an arbitral award. In case the dispute is pending in Court, parties have the option to file the settlement in court for a decree and in case of pre-litigation mediation, parties have the option to name the mediation process as a‘conciliation’.4 & 5

Legislative Recognition

The law relating to mediation in India is incorporated in the following legislations:

Industrial Disputes Act 1947, which provides for mediation of industrial disputes by officers appointed by the government;

Section 89 of the Code of Civil Procedure, 1908;

Arbitration and Conciliation Act 1996 (specifically Part III);

Hindu Marriage Act 1955, the Special Marriages Act 1954 and the Family Courts Act 1984, which require the court in the first instance to attempt mediation between parties;

Legal Services Authorities Act 1987, which provides for setting up Lok Adalats;

Section 442 of the Companies Act 2013, which provides for referral of company disputes to mediation by the National Company Law Tribunal and Appellate Tribunal read with the Companies (Mediation and Conciliation) Rules, 2016 (notified on 09thSeptember, 2016); and

Section 12A of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, which provides for mandatory pre-institution mediation in those cases where no urgent interim relief (such as an injunction) is being sought by the parties to the dispute.

Section 32(g) of the Real Estate (Regulation and Development) Act, 2016, which provides for amicable conciliation of disputes between the promoters and allottees through dispute settlement forum set up by consumer or promoter associations.

The Consumer Protection Bill, 2018 passed by Lok Sabha on December 20, 2018 provides for reference of a dispute to Mediation as an ADR Mechanism and settling up of a Consumer Mediation Cell. The District, State or the National commission may direct the parties to give a written consent to settle their dispute by mediation, if there is any element of a settlement between the parties.6

Mediation Institutions

The court-annexed mediation centres are the most prominent mediation institutions in India. The Supreme Court, almost all 24 High Courts and district courts in India have mediation centres. These courts exercise original and appellate jurisdiction across the entire range of litigation. The country’s first court-annexed mediation centre was set up in the Madras High Court in 2005, and soon this model was emulated in other high courts. The courts have given the lead in institutionalizing mediation, providing training, certification, referrals, etc.1

The establishment of court-annexed mediation centres has led the path for emergence and growth of private mediation institutes throughout the length and breadth of the country viz.:

ASSOCHAM International Council of Alternative Dispute Resolution (AICADR), New Delhi

International Centre for Alternative Dispute Resolution (ICADR), New Delhi

Centre for Advanced Mediation Practice (CAMP), Bangalore

Centre for Alternative Dispute Resolution, Mumbai

Indian Institute of Arbitration & Mediation (IIAM), Cochin

India International ADR Association (IIADRA), Cochin

Mediators India, Chennai

Foundation for Comprehensive Dispute Resolution (FCDR) , Chennai

Meta – Culture Consulting, Bangalore

Prachi Mediation Chamber, Mumbai

Bangalore International Mediation, Arbitration and Conciliation Centre (BIMACC), Bangalore

Institute for Arbitration, Mediation, Legal Education and Development (AMLEAD), Ahmedabad

Alternative Dispute Resolution(ADR) Centre, Kerala (an initiative of the Centre for Public Policy Research)

Areas of dispute for mediation

Mediation is used in virtually the entire range of business and commercial disputes, employment and workplace disputes, housing and property disputes, family disputes, technology and intellectual property disputes, company and shareholder disputes, disputes relating to sports and media laws.

The Supreme Court of India in 3Afcons Infrastructure Ltd. and Anr. V. Cherian Varkey Construction Co. Pvt. Ltd. and Ors. (2010) 8 SCC 24, held that the following categories of cases/disputes are normally considered unsuitable for ADR process

(i) Representative suits involving public interest

(ii) Election to public offices

(iii) Suits for grant of probate or letters of administration

(iv) Allegations of fraud, fabrication of documents, forgery, etc

(v) Protection of courts (claims against minors, deities and mentally challenged)

(vi) Suits for declaration of title against the Government

(vii) Cases involving prosecution for criminal offences.

The following categories of cases (whether pending in civil courts or other special tribunals/forums) are normally suitable for ADR processes:

(i) Trade, commerce, contracts, corporations, property, construction, banking/financial, shipping and real estate;

(ii) Matrimonial disputes, custody cases, maintenance, partition or division of family property;

(iii) Disputes between neighbours, employers and employees;

(iv) All cases relating to tortious liability;

(v) All consumer disputes

The above categorization of cases as “suitable” and “unsuitable” is not exhaustive or rigid. They are illustrative in referring a dispute/case to an ADR process.

Developments in Online Dispute Resolution (ODR)

Online dispute resolution (ODR) is the modern and digitized iteration of the traditional ADR with the major noticeable difference only being the use of machines and networking for communication.With the rapid development of the Internet and electronic commerce, Online Disputes Resolution has been labeled “a logical and natural step” as it facilitates expeditious resolution of disputes. 7

Mediation in consumer disputes and online dispute resolution in general, has seen some progress with the Online Consumer Mediation Centre (OCMC) being set up and other Online Dispute Resolution (ODR) initiatives viz. Techno Legal Centre of Excellence for Online Dispute Resolution in India (TLCEODRI), Perry4law, ODR India, Myshikayat, Yessettle, Grievancesolutions, Consumer Online Resource and Empowerment Center (CORE), ODRways, Presolv360 mushrooming. There is no legislation on ODR in India. 8&9

Notable cases

In Salem Advocate Bar Association, Tamil Nadu vs Union of India (2003) 1 SCC 4910[Salem Bar-(I)], the Supreme Court held that Section 89 of Civil Procedure Code, 1908 introduced by Civil Procedure Code (Amendment) Act, 1999 was constitutionally valid and would help in expeditious disposal of cases in the trial

courts and the appellate courts and established a committee to, inter alia, draft rules on mediation and create a report on effective case management and be followed while taking recourse to the Alternate Disputes Resolution (ADR) referred to in Section 89to reduce the burden on courts and the Committee was requested to file its report within a period of fourmonths for consideration. It was also observed that the formulated model rules may be adopted by the concerned High Courts to give effect to Section 89(2)(d) of the Code.

The Committee filed its reports on the issues identified in Salem Bar – (I). Another Supreme Court Bench, comprising Justice Y.K. Sabharwal, Justice D.M. Dharmadhikari, and Justice Tarun Chatterjee, extensively reviewed the submitted reports in Salem Advocate Bar Association, Tamil Nadu vs Union of India, (2005) 6 SCC 34411 [Salem Bar-(II)] and observed that Civil Procedure Alternative Dispute Resolution and Mediation Rules, 2003 and Model Case Flow Management Rules will facilitate in dispensation of effective administration of justice and directed the Registrar Generals, Central Government and State/Union Territories to file a progress report with respect to adoption of the rules developed in the Salem Bar I Committee reports, within four months of the date of the judgment.

The Supreme Court in K. Srinivas Rao v. D.A. Deepa (2013) 5 SCC 22 12 decided on 22ndFebruary, 2013held that the criminal courts dealing with the complaint under Section 498-A IPC should refer the parties to mediation centrebefore they take up the complaint for hearing, if they feel that there exist elements of settlement and both the parties are willing.

The Supreme Court in State of Madhya Pradesh v Madan Lal (2015) SCC OnLine SC 57913decided on 01.07.2015held that there could be no mediation between the accused and the victim in cases of rape.

The Delhi High Court in the case of Division Bench of Delhi High Court in Turning Point vs. Turning Point Pvt. Ltd FAO (OS) 263/2017 & CM Nos. 35553-54/201715, pronounced on August 2, 2018, expressed its view that the Appellant and the Respondent ideally should negotiate their differences by mediation.

The Supreme Court of India in Moti Ram (D) Thr. L.Rs. and Anr. vs. Ashok Kumar and Anr. (2011) 1 SCC 46616 stressed that mediation proceedings are strictly confidential and observed that the mediator should send the settlement agreement signed by the parties to the Court without mentioning what transpired during the mediation proceedings,when successful and in other cases .e., when unsuccessful the mediator should simply state that mediation has been unsuccessful.

Mediation in India: Recent developments

The Ease of Doing Business Task Force at the Central Government has asked the Ministry of Law and Justice to take necessary steps to introduce a stand-alone law to regulate pre-litigation voluntary mediation in May 2017. In February 2016, the law ministry had mooted a note on similar lines, backing a new law on mediation17.

Mediation was central to the discussions at the recent three day (12th to 14th May, 2017) event Global Pound Conference Series India 2016 – 201718 titled “Shaping the Future of Dispute Resolution and Improving Access to Justice” held at the Judicial Academy, Chandigarh.Familiarity with the dispute resolution process was identified as the biggest influencer when lawyers make recommendations to parties about procedural options for resolving commercial disputes. 19

The Two-day conference (27th-28thJuly, 2018) on National Initiative to Reduce Pendency and Delay in Judicial System20 was organized by Supreme Court of India in collaboration with the Indian Law Institute, New Delhi to deliberate on the issue of pendency and delay in the judicial system.

The panel of eminent legal luminaries headed by Hon’ble Shri Justice Dipak Misra, the then Chief Justice of India deliberated on the concept of ‘case and court management system’, ‘methods of promoting Alternative Dispute Resolution’, ‘greater use of technology to endeavour to plug the gaps in justice delivery’ by taking immediate appropriate measures of identifying the cases which need urgent attention and quick disposal and suggested to strive for more alternative methods of dispute resolution in various forms like arbitration, mediation, pre-litigation mediation, negotiation, Lok Adalats, etc., and employ ADR methods through courts as courts are empowered to do so under section 89 of Civil Procedure Code, 1908 and urged the judicial officers to interact with the parties diligently to explore the possibility of ADR, wherever possible and advocated that subordinate judiciary should be trained on these aspects during their induction training days itself and highlighted that ADR mechanism can be taken online via use of technology in making justice dispensation system more efficient and fast.

References

https://www.sci.gov.in/pdf/mediation/MT%20MANUAL%20OF%20INDIA.pdf

https://www.livelaw.in/see-court-see-court-burdened-judicial-system-can-adr-system-answer-part-iii/

https://indiankanoon.org/doc/1875345/

4.https://www.thehindubusinessline.com/news/how-private-mediation-helps-corporates-solve-disputes-faster/article24138432.ece

http://dakshindia.org/Daksh_Justice_in_India/14_chapter_04.xhtml

6.164.100.47.4/BillsTexts/LSBillTexts/Asintroduced/1_2018_LS_Eng.pdf

http://pib.nic.in/newsite/PrintRelease.aspx?relid=178824

https://trianglein.org/2018/07/21/online-dispute-resolution-series-application-and-position-of-odr/http://doj.gov.in/page/online-dispute-resolution-through-mediation-arbitration-conciliation-etc

https://indiankanoon.org/doc/393527/

https://indiankanoon.org/doc/20185201/

https://indiankanoon.org/doc/342197/

https://indiankanoon.org/doc/14713882/

https://indiankanoon.org/doc/84388891/

https://indiankanoon.org/doc/171370472/

https://indiankanoon.org/doc/21158031/

https://indiankanoon.org/doc/79225691/

https://www.firstpost.com/india/government-mulls-new-law-on-out-of-court-settlements-to-ease-load-on-judiciary-3506129.html

https://globalpound.org/wp-content/uploads/2017/07/GPC-Series-Chandigarh-2017-Voting-Results.pdf

https://www.livelaw.in/global-pound-conference-2017/

http://nagaonjudiciary.gov.in/statement/ProceedingSC.pdf

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mutualconsentdivorce · 2 years ago

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advocate-paresh-m-modi · 8 months ago

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Family Lawyer In Ahmedabad | Advocate Paresh M Modi | Family Case Advocates In Ahmedabad | Domestic Violence Attorney

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whatssupindia · 6 years ago

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Gujarat: Ghar-jamai gets relief in domestic violence complaint by gharwali

Conventionally, courts are not very lenient in dropping cases of matrimonial discord, especially if it involves charges of domestic violence (DV) by the wife. The Gujarat high court, however, recently quashed a DV complaint, essentially because the husband was a ghar-jamai! from Ahmedabad News, Latest Ahmedabad News Headlines & Live Updates - Times of India http://bit.ly/2WUvB7S from Blogger http://bit.ly/2Y2zmcM

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prasanththampi · 6 years ago

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CASE: I ARROW AND THE APPAREL INDUSTRY

Ten years ago, Arvind Clothing Ltd., a subsidiary of Arvind Brands Ltd., a member of the Ahmedabad based Lalbhai Group, signed up with the 150- year old Arrow Company, a division of Cluett Peabody & Co. Inc., US, for licensed manufacture of Arrow shirts in India. What this brought to India was not just another premium dress shirt brand but a new manufacturing philosophy to its garment industry which combined high productivity, stringent in-line quality control, and a conducive factory ambience.

Arrow’s first plant, with a 55,000 sq. ft. area and capacity to make 3,000 to 4,000 shirts a day, was established at Bangalore in 1993 with an investment of Rs 18 crore. The conditions inside—with good lighting on the workbenches, high ceilings, ample elbow room for each worker, and plenty of ventilation, were a decided contrast to the poky, crowded, and confined sweatshops characterising the usual Indian apparel factory in those days. It employed a computer system for translating the designed shirt’s dimensions to automatically mark the master pattern for initial cutting of the fabric layers. This was installed, not to save labour but to ensure cutting accuracy and low wastage of cloth.

The over two-dozen quality checkpoints during the conversion of fabric to finished shirt was unique to the industry. It is among the very few plants in the world that makes shirts with 2 ply 140s and 3 ply 100s cotton fabrics using 16 to 18 stitches per inch. In March 2003, the Bangalore plant could produce stain-repellant shirts based on nanotechnology.

The reputation of this plant has spread far and wide and now it is loaded mostly with export orders from renowned global brands such as GAP, Next, Espiri, and the like. Recently the plant was identified by Tommy Hilfiger to make its brand of shirts for the Indian market. As a result, Arvind Brands has had to take over four other factories in Bangalore on wet lease to make the Arrow brand of garments for the domestic market.

In fact, the demand pressure from global brands which want to outsource form Arvind Brands is so great that the company has had to set up another large factory for export jobs on the outskirts of Bangalore. The new unit of 75,000 sq. ft. has cost Rs 16 crore and can turn out 8,000 to 9,000 shirts per day. The technical collaborators are the renowned C&F Italia of Italy.

Among the cutting edge technologies deployed here are a Gerber make CNC fabric cutting machine, automatic collar and cuff stitching machines, pneumatic holding for tasks like shoulder joining, threat trimming and bottom hemming, a special machine to attach and edge stitch the back yoke, foam finishers which use air and steam to remove creases in the finished garment, and many others. The stitching machines in this plant can deliver up to 25 stitches per inch. A continuous monitoring of the production process in the entire factory is done through a computerised apparel production management system, which is hooked to every machine. Because of the use of such technology, this plant will need only 800 persons for a capacity which is three times that of the first plant which employs 580 persons.

Exports of garments made for global brands fetched Arvind Brands over Rs 60 crore in 2002, and this can double in the next few years, when the new factory goes on full stream. In fact, with the lifting of the country-wise quota regime in 2005, there will be surge in demand for high quality garments from India and Arvind is already considering setting up two more such high tech export-oriented factories.

It is not just in the area of manufacture but also retailing that the Arrow brand brought a wind of change on the Indian scene. Prior to its coming, the usual Indian shirt shop used to be a clutter of racks with little by way of display. What Arvind Brands did was to set up exclusive showrooms for Arrow shirts in which the functional was combined with aesthetic. Stuffed racks and clutter eschewed. The product were displayed in such a manner the customer could spot their qualities from a distance. Of course, today this has become standard practice with many other brands in the country, but Arrow showed the way. Arrow today has the largest network of 64 exclusive outlets across India. It is also present in 30 retail chains. It branched into multi-brand outlets in 2001, and is present in over 200 select outlets.

From just formal dress shirts in the beginning, the product range of Arvind Brands has expanded in the last ten years to include casual shirts, T-shirts, and trousers. In the pipeline are light jackets and jeans engineered for the middle-aged paunch. Arrow also tied up with the renowned Italian designer, Renato Grande, who has worked with names like Versace and Marlboro, to design its Spring / Summer Collection 2003. The company has also announced its intention to license the Arrow brand for other lifestyle accessories like footwear, watches, undergarments, fragrances, and leather goods. According to Darshan Mehta, President, Arvind Brands Ltd., the current turnover at retail prices of the Arrow brand in India is about Rs 85 crore. He expects the turnover to cross Rs 100 crore in the next few years, of which about 15 per cent will be from the licensed non-clothing products.

In 2005, Arvind Brands launched a major retail initiative for all its brands. Arvind Brands licensed brands (Arrow, Lee and Wrangler) had grown at a healthy 35 per cent rate in 2004 and the company planned to sustain the growth by increasing their retail presence. Arvind Brands also widened the geographical presence of its home-grown brands, such as Newport and Ruf-n Tuf, targeting small towns across India. The company planned to increase the number of outlets where its domestic brands would be available, and draw in new customers for readymades. To improve its presence in the high-end market, the firm started negotiating with an international brand and is likely to launch the brand.

The company has plans to expand its retail presence of Newport Jeans, from 1200 outlets across 480 towns to 3000 outlets covering 800 towns.

For a company ranked as one of the world’s largest manufactures of denim cloth and owners of world famous brands, the future looks bright and certain for Arvind Brands Ltd.

Company profile

Name of the Company :Arvind Mills

Year of Establishment :1931

Promoters : Three brothers--Katurbhai, Narottam Bhai, and Chimnabhai

Divisions :Arvind Mills was split in 1993 into Units—textiles, telecom and garments. Arvind Ltd. (textile unit) is 100 per cent subsidiary of Arvind Mills.

Growth Strategy :Arvind Mills has grown through buying-up of sick units, going global and acquisition of German and US brand names.

Questions

Why did Arvind Mills choose globalization as the major route to achieve growth when the domestic market was huge?

How does lifting of ‘Country-wise quota regime’ help Arvind Mills?

What lessons can other Indian businesses learn form the experience of Arvind Mills?

CASE: II THE ECONOMY OF KENYA

Kenya’ economy has been beset by high rates of unemployment and underemployment for many years. But at no time has it been more significant and more politically dangerous than in the late 1990s as an authoritarian beset by corruption, cronyism and economic plunder threatened the economic stability of this once proud nation. Yet Kenya still has great potential. Located in East Africa, it has a diverse geographic and climatic endowment. Three-fifths of the nation is semiarid desert (mostly in the north), and the resulting infertility of this land has dictated the location of 85 per cent of the population (30 million in 2000) and almost all economic activity in the southern two-fifths of the country. Kenya’s rapidly growing population is composed of many tribes and is extremely heterogeneous (including traditional herders, subsistence and commercial farmers, Arab Muslims, and cosmopolitan residents of Nairobi). The standard of living at least in major cities, is relatively high compared to the average of other sub-Saharan African countries.

However, widespread poverty (per capita US$360), high unemployment, and growing income inequality make Kenya a country of economic as well as geographic diversity. Agriculture is the most important economic activity. About three quarters of the population still lives in rural areas and about 7 million workers are employed in agriculture, accounting for over two-thirds of the total workforce.

Despite many changes in the democratic system, including the switch from a federal to a republican government, the conversion of the prime ministerial system into a presidential one, the transition to a unicameral legislature, and the creation of a one-party state, Kenya has displayed relatively high political stability (by African standards) since gaining independence from Britain in 1963. Since independence, there have been only two presidents. However, this once stable and prosperous capitalist nation has witnessed widespread ethnic violence and political upheavals since 1992 as a deteriorating economy, unpopular one-party rule, and charges of government corruption create a tense situation.

An expansionary economic policy characterised by large public investments, support of small agricultural production units, and incentives for private (domestic and foreign) industrial investment played an important role in the early 7 per cent rate of GDP growth in the first decade after independence. In the following seven years (1973-80), the oil crisis let to a lower GDP growth to an annual rate of 5 per cent. Along with the oil price shock, lack of adequate domestic saving and investment slowed the growth of the economy. Various economic policies designed to promote industrial growth led to a neglect of agriculture and a consequent decline in farm prices, farm production, and farmer incomes. As peasant farmers became poorer, more migrated to Nairobi, swelling an already overcrowded city and pushing up an existing high rate of urban unemployment. Very high birthrates along with a steady decline in death rates (mainly through lower infant mortality) led Kenya’s population growth to become the highest in the world (4.1 per cent per year) in 1988. Population growth fell to a still high rate of 2.4 per cent for the period 1990-2000.

The slowdown in GDP growth persisted in the following five years (1980-85), when the annual average was 2.6 per cent. It was a period of stabilization in which political shakiness of 1982 and the severe drought in 1984 contributed to a slowdown in industrial growth. Interest rates rose and wages fell in the public and private sectors. An improvement in the budget deficit and current account trade deficit, obtained through cuts in development expenditures and recessive policies aimed at reducing imports, contributed to lower economic growth. By 1990, Kenya’s per capita income was 9 per cent lower than it was in 1980--$370 compared to $410. It continued to decline in the 1990s. In fact, GDP per capita fell at an annual average rate of 0.3 per cent throughout the decade. At the same time, the urban unemployment rate rose to 30 per cent.

Comprising 23 per cent of 2000 GDP AND 77 per cent of merchandise exports, agricultural production is the backbone of the Kenyan economy. Because of its importance, the Kenyan government has implemented several policies to nourish the agricultural sector. Two such policies include fixing attractive producer prices and making available increasing amounts of fertilizer. Kenya’s chief agricultural exports are coffee, tea, sisal, cashew nuts, pyrethrum, and horticultural products. Traditionally, coffee has been Kenya’s chief earner in foreign exchange.

Although Kenya is chiefly agrarian, it is still the most industrialised country in eastern Africa. Public and private industry accounted for 16 per cent of GDP in 2000. Kenya’s chief manufacturing activities are food processing and the production of beverages, tobacco, footwear, textiles, cement, metal products, paper, and chemicals.

Kenya currently faces a multitude of problems. These include a stagnating economy, growing political unrest, a huge budget deficit, high unemployment, a substantial balance of payments problem, and a stubbornly high population growth rate.

With the unemployment rate already at 30 per cent and its population growing, Kenya faces the major task of employing its burgeoning labour force. Yet only 10-15 per cent of seekers land jobs in the modern industrial sector. The remainder must find jobs in the self-employment sector; in the agricultural sector, where wages are low and opportunities are scarce; or join the masses of the unemployed.

In addition to the unemployment problem, Kenya must always be concerned with how to feed its growing population. An increase in population means an increasing demand for food. Yet only 20 per cent of Kenya’s land is arable. This implies that the land must become increasingly productive. Unfortunately, several factors work to constrain Kenya’s food output, among them fragmented landholdings, increasing environmental degradation, the high cost of agricultural inputs, and burdensome governmental involvement in the purchase, sale, and pricing of agricultural output.

For the fiscal year 1995, the Kenyan budget deficit was $362 million, well above the government’s target rate. Dealing with a high budget deficit is a second problem Kenya currently faces. Following the collapse of the East African Common Market, Kenya’s industrial growth rate has declined; as a result the government’s tax base has diminished. To supplement domestic savings, Kenya has had to turn to external sources of finance, including foreign aid grants from Western governments. Its highly protected public enterprises have been turning in a poor performance, thus absorbing a large chunk of the government budget. To pay for its expenses, Kenya has had to borrow from international banks in addition to foreign aid. In recent years, government borrowing from the international banking system rose dramatically and contributed to a rapid growth in money supply. This translated into high inflation and pinched availability of credit.

Kenya has also had a chronic international balance of payments problem. Decreasing prices for its exports, combined with increasing prices for its imports, left Kenya importing almost twice as much as it exported in 2000, at $3,200 million in imports and only $1,650 million in exports. World demand for coffee, Kenya‘s predominant exports, remains below supply. In 2001-01, a dramatic surge in coffee exports from Vietnam hurt Kenya further. Hence Kenya cannot make full use of its comparative advantage in coffee production, and its stock of coffee has been increasing. Tea, another main export, has also had difficulties. In 1987, Pakistan, the second largest importer of Kenyan tea, slashed its purchases. Combined with a general oversupply in the world market, this fall in demand drove the price of tea downward. Hence Kenya experienced both a lower dollar value and quantity demanded for one of its principal exports.

Kenya faces major challenges in the years ahead as the economy tries to recover. Current is expected to be no more than 1 to 2 per cent annually. Heavy rains have spoiled crops and washed away roads, bridges, and telephone lines. Foreign exchange earnings from tourism, once promising, dropped by 40 per cent in the mid-1990s, then suffered again after the August 7, 1998, terrorist bombing of the US embassy in Nairobi. Even more frightening, however, is the prospect of growing hunger as Kenya’s maize (corn) crop has failed to meet rising internal demand and dwindling foreign exchange reserves have to be spent to import food. Corruption is perceived to be so widespread that the International Monetary Fund and World Bank suspended $292 million in loans to Kenyan in the summer of 1997 while insisting on tough new austerity measures to control public spending and weed out economic cronyism. As a result, the economy went into a tailspin, foreign investors fled the country, and inflation accelerated markedly.

Unfortunately, needed structural adjustments resulting form the World Bank—and IMF—induced austerity demands usually take a long time. Whether the Kenyan political and economic system can withstand any further deterioration in living conditions is a major question. Public protests for greater democracy and a growing incidence of ethnic violence may be harbingers of things to come.

Fig 1 Continuum of Economic Systems

Pure Market Pure Centrally Planned Economy

Economy

The US France India China

Canada Brazil Cuba

UK North Korea

Questions

Is the economic environment of Kenya favourable to international business? Yes or no—substantiate.

In the continuum of economic systems (see Fig 1), where do you place Kenya and why?

Case III: LATE MOVER ADVANTAGE?

Though a late entrant, Toyota is planning to conquer the Indian car market. The Japanese auto major wants to dispel the notion that the first mover enjoys an edge over the rivals who arrive late into a market.

Toyota entered the Indian market through the joint venture route, the partner being the Bangalore based Kirloskar Electric Co. Know as Toyota Kirloskar Motor (TKM), the plant was set up in 1998 at Bidadi near Bangalore.

To start with, TKM released its maiden offer—Qualis. Qualis is not a newly conceived, designed, and brought out vehicle. Rather it is the new avatar of Kijang under which brand the vehicle was sold in markets like Indonesia.

Qualis virtually had no competition. Telco’s Sumo was not a multi-utility vehicle like Qualis. Rather, it was mini-truck converted into a rugged all-purpose van. More importantly, Toyota proved that even its old offering, but decked up for India, could offer better quality than its competitor. Backed by a carefully thought out advertising campaign that communicated Toyota’s formidable global reputation, Qualis went on a roll and overtook Tata Sumo within two years of launch.

Sumo sold 25,706 vehicles during 2000-2001, compared to a 3 per cent growth over the previous year, compared to 25,373 of Qualis. But during 2001-2002, it was a different story. Qualis had been clocking more than 40 per cent share of the market. At the end of Sept 2001, Qualis had sold over 25,000 units, compared to Sumo’s 18000 plus.

The heady initial success has made TKM think of the future with robust confidence. By 2010, TKM wants to make and sell one million vehicles per year and garner one-third share of the Indian market.

The firm is planning to introduce a wide range of vehicle—a sub-compact, a sedan, a luxury car and a new multi-utility vehicle to replace Qualis. A significant percentage of the vehicles will be exported.

But Toyota is not as lucky in China. Its strategy of ‘late entry’ in China seems to have back fired. In 2005, it sold just 1,83,000 cars in China, the fastest growing auto market in the world. Toyota ranks ninth in the market, far behind Volkswagen, General Motors, Hyundai and Honda.

Toyota delayed producing cars in China until 2002, when it entered a joint venture with a local company, the First Auto Works Group (FAW). The first car manufactured by Toyota-FAW, the Vios, failed to attract much of a market, as, despite its unremarkable design, it was three times as expensive as most cars sold in China.

Late start was not the only problem. There were other lapses too. Toyota assumed the Chinese market would be similar to the Japanese market. But Chinese market, in reality, resembled the American market.

Sales personnel in Japan are paid salaries. They succeeded in building a loyal clientele for Toyota by providing first-class service to them. Likewise, most Japanese auto dealers sell a single brand, thereby ensuring their loyalty to it. Japan is a relatively a well-knit country with an ethnically homogeneous population. Accordingly, Toyota used nationwide advertising to market its products in its home country.

But China is different. Sales people are paid commissions and most dealers sell multiple brands. Obviously, loyalty plays little role in motivating either the sales staff or the dealers, who will ignore a slow selling product should a more profitable one turn up. Besides, China is a large, diverse country. A standardised ad campaign will not do. Luckily, Toyota is learning its lessons.

Competition in the Chinese market is tough, and Toyota’s success in reaching its goal of selling a million cars a year, by 2010, is uncertain. But, its chances are brighter as the company is able to transfer lessons learned in the American market to its operations in China.

Questions

Why has the ‘late corner’s strategy’ of Toyota failed in China, though it succeeded in India?

Why has Toyota failed to capture the Chinese market? Why is it trailing behind its rivals?

CASE: IV DELVING DEEP INTO USER’S MIND

Whirlpool is an American brand alright, but has succeeded in empowering the Indian housewife with just the tools she would have designed for herself. A washing machine that doesn’t expect her to get ‘ready for the show’ (Videocon’s old jingle), nor adapt her plumbing, power supply, dress sense, values, attitudes and lifestyle to suit American standards.

That, in short, is the reason that Whirlpool White Magic, in just three years since its launch in 1999, has become the choice of the discerning Indian housewife. Also worth noting is how quickly the brand’s sound mnemonic, ‘Whirlpool, Whirlpool’, has established itself.

Whiteboard beginning

As a company, the US-based white goods major Whirlpool had entered India in 1989, in a joint venture with the TVS group. Videocon, which had pioneered washing machines in India, was the market leader with its range of low-priced ‘washers’ (spinning tubs) and semi-automatic machines, which required manual supervision and some labour. The brand’s TV commercial, created by Pune-based SJ Advertising, has evoked considerable interest with its jingle (‘It washes, it rinses, it even dries your clothes, in just a few minutes…and you’re ready for the show’). IFB-Bosch’s front-loading, fully automatic machines, which could be programmed and left to do their job, were the labour-free option. But they were considered expensive and unsuited to Indian conditions. So Videocon faced competition from me-too machines such as BPL-Sanyo’s. TVS Whirlpool was something of an also-ran.

The market’s sophistication started rising in the 1990s and there was a growing opportunity in the price-performance gap between expensive automatics and laborious semi-automatics. In 1995, Whirlpool gained a majority control of TVS Whirlpool, which was then renamed Whirlpool Washing Machines Ltd (WMML). Meanwhile, the parent bought Kelvinator of India, and merged the refrigerator business in 1996 with WMML to create Whirlpool of India (WOI), to market both fridges and washing machines. Whirlpool’s ‘Flexigerator’ fridge hit the market in 1997. Two years later, WOI launched its star White Magic range of washing machines.

Whitemagic was late to the market, but WOI converted this to a ‘knowledge advantage’ by using the 1990s to study the Indian market intensely, through qualitative and quantitative market research (MR) tools, with the help of IMRB and MBL India. The research team delved deep into the psyche of the Indian housewife, her habits, her attitude towards life, her schedule, her every day concerns and most importantly, her innate ‘laundry wisdom’.

If Ashok Bhasin, vice-president marketing, WOI, was keen on understanding the psychodynamics of Indian clothes washing, it was because of his belief that people’s attitudes and perceptions of categories and brands are formed against the backdrop of their bigger attitudes in life, which could be shaped by broader trends. It was intuitive, to begin with, that the housewife wanted to gain direct control over crucial household operations. It was found that clothes washing was the daily activity for the Indian housewife, whether it was done personally, by a maid, or by a machine.

The key finding, however, was the pride in self-done washing. To the CEO of the Indian household, there was no displacing the hand wash as the best on quality. And quality was to be judged in terms of ‘whiteness’. Other issues concerned water consumption, quantity of detergent used, and fabric care—also something optimized best by herself. A thorough wash, done with gentle agility, was what the magic was all about.

That was the break-through insight used by Whirlpool for the design of all its washing machines, which adopted a ‘1-2, 1-2 Hand Wash Agitator System’ to mimic the preferred handwash technique. With a consumer so particular about washing, one could expect her to be value-conscious on other aspects too. Sure enough, WOI found the housewife willing to pay a premium for a product designed the way she wanted it. Even for a fully automatic, she wanted a top-loader; this way, she doesn’t fear clothes getting trapped in if the power fails, and retains the ability to lift the shutter to take clothes out (or add to the wash) even while the machine is in the midst of its job.

The target consumer, defined psychographically as the Turning Modernist (TM), was decided upon only after the initial MR exercise was concluded. This was also the stage at which the unique selling proposition (USP)—‘whitest white’—was thrashed out.

WOI first launched a fully automatic machine, with the hand-wash agitator. Then came the deluxe model with a ‘hot wash’ function. The product took off well, but WOI felt that a large chunk of the TM segment was also budget-bound. And was quite okay with having to supervise the machine. This consumer’s identity as a ‘home-maker’ was important to her, an insight that Whirlpool was using for the brand overall, in every product category.

So WOI launched a semi-automatic washing machine, with ‘Agisoak’ as a catchword to justify a 10—15 per cent premium over other brand’s semi-automatics available in India.

The advertising, WOI was clear, had to flow from the same stream of reasoning. It had to be responsive, caring, modern, stylish, and warm, and had to portray the victory of the Homemaker. FCB-Ulka, which had bagged Whirlpool’s account in March 1997 from contract (in a global alignment shift), worked with WOI to coin the sub-brand Whitemagic, to break into consumer mindspace with the whiteness proposition.

The launch commercial on TV, in August 1999, scored a big success with its ‘Whirlpool, Whirlpool’ jingle…and a mother’s fantasy of her daughter’s clothes wowing others. A product demonstration sequence took the ‘1-2, 1-2’ message home, reassuring the consumer that the wash would be just as good as that of her own hand. The net benefit, of course, was an unharried home life.

Second Wave

Sadly, the Indian market for washing machines has been in recession for the past two years, with overall volumes declining. This makes it a fight for market share, with the odds stacked against premium players.

Even though Whirlpool has sought to nudge the market’s value perception upwards, Videocon remains the largest selling brand in volume terms with its competitively priced machines. Washers have been displaced by semi-automatics, which are now the market’s mainstay (in the Rs 7,000-12,000 price range). In fact, these account for three-fourths of the 1.2 million units the Indian market sold in 2000. With a share of 17 per cent, Whirlpool is No. 2 in this voluminous segment.

Whirlpool’s bigger success has been in the fully automatic segment (Rs 12,000-36,000 range). This is smaller with sales of 177,600 units in 2000, but is predicted to become the dominant one as Indian GDP per head reaches for the $1,000 mark. With a 26 per cent share, Whirlpool has attained leadership of this segment.

That places WOI at the appropriate juncture to plot the value curve to be ascended over the new decade.

According to IMRB data, Whirlpool finds itself in the consideration set of 54 per cent of all prospective washing machine buyers, and has an ad recall of close to 85 per cent. This indicates the medium-term potential of Whitemagic, a Rs20.5 crore on a turnover of Rs1,042.8 crore, one-fifth of which was on account of washing machines.

The innovations continue. Recently, Whirlpool has launched semi-automatic machines with ‘hot wash’. The brand’s ‘magic’ isn’t showing signs of wearing off either. The current ‘mummy’s magic’ campaign on TV is trying to sell Whitemagic as a competent machine even for heavy duty washing such as ketchup stains on a white tablecloth.

The Homemaker, of course, remains the focus of attention. And she remains as vivacious, unruffled, and in control as ever. The attitude: you can sling the muckiest of stuff on to white cloth, but sparkling white is what it remains for its her hand that’ll work the magic, with a little help from some friends… such as Whirlpool.

Questions

What product strategy did WOI adopt? And why? Global standardisation? Local customisaton?

What pricing strategy did WOI follow? What, according to you, could have been the appropriate strategy?

What lessons can other white goods manufacturers learn from WOI?

CASE V: CONSCIENCE OR COMPETITIVE EDGE

The plane touched down at Mumbai airport precisely on time. Olivia Jones made her way through the usual immigration bureaucracy without incident and was finally ushered into a waiting limousine, complete with uniformed chauffeur and soft black leather seats. Her already considerable excitement at being in India for the first time was mounting. As she cruised the dark city streets, she asked her chauffeur why so few cars had their headlights on at night. The driver responded that most drivers believed that headlights use too much petrol! Finally, she arrived at her hotel, a black marble monolith, grandiose and decadent in its splendour, towering above the bay.

The goal of her four-day trip was to sample and select swatches of woven cotton from the mills in and around Mumbai, to be used in the following season’s youth-wear collection of shirts, trousers, and underwear. She was thus treated with the utmost deference by her hosts, who were invariably Indian factory owners or British agents for Indian mills. For three days she was ferried from one air-conditioned office to another, sipping iced tea or chilled lemonade, poring over leather-bound swatch catalogues, which featured every type of stripe and design possible. On the fourth day, Jones made a request that she knew would cause some anxiety in the camp. “I want to see a factory,” she declared.

After much consultation and several attempts at dissuasion, she was once again ushered into a limousine and driven through a part of the city she had not previously seen. Gradually, the hotel and the Western shops dissolved into the background and Jones entered downtown Mumbai. All around was a sprawling shantytown, constructed from sheets of corrugated iron and panels of cardboard boxes. Dust flew in spirals everywhere among the dirt roads and open drains. The car crawled along the unsealed roads behind carts hauled by man and beast alike, laden to overflowing with straw or city refuse—the treasure of the ghetto. More than once the limousine had to halt and wait while a lumbering white bull crossed the road.

Finally, in the very heart of the ghetto, the car came to a stop. “Are you sure you want to do this?” asked her host. Determined not be faint-hearted, Jones got out the car.

White-skinned, blue-eyed, and blond, clad in a city suit and stiletto-heeled shoes, and carrying a briefcase, Jones was indeed conspicuous. It was hardly surprising that the inhabitants of the area found her an interesting and amusing subject, as she teetered along the dusty street and stepped gingerly over the open sewers.

Her host led her down an alley, between the shacks and open doors and inky black interiors. Some shelters, Jones was told, were restaurants, where at lunchtime people would gather on the rush mat floors and eat rice together. In the doorway of one shack there was a table that served as a counter, laden with ancient cans of baked beans, sardines, and rusted tins of fluorescent green substance that might have been peas. The eyes of the young man behind the counter were smiling and proud as he beckoned her forward to view his wares.

As Jones turned another corner, she saw an old man in the middle of the street, clad in a waist cloth, sitting in a large bucket. He had a tin can in his hand with which he poured water from the bucket over his head and shoulders. Beside him two little girls played in brilliant white nylon dresses, bedecked with ribbons and lace. They posed for her with smiling faces, delighted at having their photograph taken in their best frocks. The men and women around her with great dignity and grace, Jones thought.

Finally, her host led her up a precarious wooden ladder to a floor above the street. At the top Jones was warned not to stand straight, as the ceiling was just five feet high. There, in a room not 20 feet by 40 feet, 20 men were sitting at treadle sewing machines, bent over yards of white cloth. Between them on the floor were rush mats, some occupied by sleeping workers awaiting their next shift. Jones learned that these men were on a 24-hour rotation, 12 hours on and 12 hours off, every day for six months of the year. For the remaining six months they returned to their families in the countryside to work the land, planting and building with the money they had earned in the city. The shirts they were working on were for an order she had placed four weeks earlier in London, an order of which she had been particularly proud because of the low price she had succeeded in negotiating. Jones reflected that this sight was the most humbling experience of her life. When she questioned her host about these conditions, she was told that they were typical for her industry—and most of the Third World, as well.

Eventually, she left the heat, dust and din to the little shirt factory and returned to the protected, air-conditioned world of the limousine.

“What I’ve experienced today and the role I’ve played in creating that living hell will stay with me forever,” she thought. Later in the day, she asked herself whether what she had seen was an inevitable consequence of pricing policies that enabled the British customer to purchase shirts at £12.99 instead of £13.99 and at the same time allowed the company to make its mandatory 56 percent profit margin. Were her negotiating skills—the result of many years of training—an indirect cause of the terrible conditions she has seen?

Once Jones returned to the United Kingdom, she considered her position and the options open to her as a buyer for a large, publicly traded, retail chain operating in a highly competitive environment. Her dilemma was twofold: Can an ambitious employee afford to exercise a social conscience in his or her career? And can career-minded individuals truly make a difference without jeopardising their future? Answer her.

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advocate-paresh-m-modi · 1 year ago

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