BPL thinks out of the box  

FOR MILLIONS OF INDIANS, one of the most enduring memories is that of buying their first television. And for many, that first TV was often a hefty, box-like BPL. Through the 1990s, the trusty old warhorse occupied pride of place in living rooms across the country and was almost synonymous with televisions in India—until it suddenly disappeared a decade or so ago.

Today, the once-ubiquitous consumer appliances brand is back. After years of being in the shadows, the Rs 550 crore BPL Group—which began its journey in Palakkad, Kerala, more than 50 years ago—is once again selling its legacy brand of televisions, washing machines, and air-conditioners. But the big difference is, it isn’t making them from scratch anymore. In its new avatar, BPL has ditched its traditional manufacturing model and adopted a more efficient asset-light business model. In other words, it doesn’t have dozens of factories cranking out bits and bobs; rather, it sources components from China and assembles slick flat-screen televisions and modern washing machines at a leased plant in Baddi, Himachal Pradesh. “Going asset-light certainly helps flexibility,” says Manmohan Ganesh, head of corporate strategy at BPL. “The moment you invest in building a facility, you are forced to use that even if there are opportunities to get things done cheaper.”

For BPL, going down the asset-light road was perhaps inevitable. The company hit a rough patch in 2005 when its long-time technology partner and later joint venture partner in consumer durables, Japan’s Sanyo, suffered heavy losses and was ultimately bought over by Panasonic in 2009. Adding to its woes was the acrimonious fallout between T.P.G. Nambiar, who founded the group in 1963, and his son-in-law, Rajeev Chandrashekar, over the ownership of BPL Communications. Chandrashekar, currently a Rajya Sabha MP from Karnataka, ultimately bought out Nambiar’s 8% stake in the business. He then sold the telecom business to the Essar Group for $1.1 billion (Rs 6,949 crore at current rates) and started an investment firm called Jupiter Capital.

BPL’s share in the consumer durables market started falling from 2000 onwards as the likes of Samsung, LG, and Sony started entering Indian homes. The onslaught by South Korean and Japanese brands, the ill-fated joint-venture with Sanyo, and the evolution from box-like CRT televisions to LCD and LED panels forced BPL to shutter its consumer durables division in 2005. From then, BPL started selling its factories and focussed its energies on the medical devices business as well as the home automation and surveillance solutions business.

Today, only three of its 24 factories remain—two in Bengaluru and one in Palakkad. The Bengaluru factories make printed circuit boards, and the Palakkad plant makes medical equipment for BPL Medical Technologies, and some telecom equipment. It’s a long way from when the group had 24 factories with 2.8 million sq. ft. across India, making not just TVs from scratch but even the cardboard boxes used for packaging.

All this while, T.P.G. Nambiar’s dream of making BPL a household brand to last through the ages seemed to be fizzling out. But in 2015, his son, Ajit G. Nambiar, who was handed the reins of the group just before the turmoil of the early 2000s started, decided to re-enter the consumer durables space through an exclusive tie-up with Flipkart. After the tie-up, BPL started to sort out its manufacturing. The company decided to go asset light because of the change in market dynamics and also because it had sold several of its legacy factories. It began by using its Bengaluru facilities to assemble the electronic components for televisions and then went on to lease the plant in Himachal Pradesh.

BPL’s decision to outsource manufacturing is a sign of the times. Since the global economic crisis of 2008, the asset-light business model has won favour with companies across the world. Take Uber. The company has changed the way we travel within cities. Yet it does not own any cabs. Airbnb has changed the way we travel, yet it does not own any properties. It’s a model that many leading smartphone companies across the world have adopted successfully—Apple, Oppo, Vivo, Lenovo and Xiaomi don’t actually manufacture the phones they sell.

Makers of other appliances such as televisions have also chosen the same route. The ecosystem of component makers who supply display panels, speakers, motherboards and connectivity ports that make a TV cuts out the need to manufacture altogether. In India, adopting an asset-light model helped the emergence of Mumbai-based Vu Technologies, whose Vu TV is positioned as a high-end television brand. Gurugram-based Micromax and New Delhi’s Intex have also made inroads by adopting the same model.

The advantage of an asset-light model is that it slashes costs dramatically. Companies don’t need to invest in land, infrastructure, or R&D, which cuts operating costs and minimises risk. So, as sales go up, the company’s profits also go up because basic costs remain the same. The model, says Anil Talreja, partner, Deloitte India, helps new players enter the consumer durables market. “The launch of consumer durables is one of the toughest ones today in the marketplace,” says Talreja. “The evolution of a modern-day ecosystem like e-commerce websites for sales and distribution and contract manufacturing is a good enabler for companies entering the market.”

The change at BPL isn’t limited to manufacturing. In its second coming, it has also junked the traditional distribution network of brick-and-mortar stores and is relying on e-commerce partners to keep costs low. Remember the old BPL showrooms that dotted markets in the 1990s? They’re out. BPL relaunched in 2015 through online retailer Flipkart, but the company ended the partnership in May, and now BPL-branded TVs, air conditioners, and washing machines are available exclusively on Amazon. A new line of refrigerators will be added soon. Ajit Nambiar says a large offline network is viable only if there is sufficient demand across the country, as the cost to establish stores, sales officers, on-ground installation teams, and more is high. “Distribution through e-commerce was the easiest way to get back,” says Nambiar. “In e-commerce, the platform is ready and you just piggyback on it, and get back into business.”

BPL’s decision to cut costs by outsourcing manufacturing and dumping a large distribution network has paid off. The company, which is listed on the Bombay Stock Exchange, posted a healthy Rs 53.1 crore profit in 2016-17 compared with a loss of Rs 8.5 crore in the previous year. Its revenue from operations also jumped nearly 125% to Rs 98.1 crore in  2016-17. The company’s financial health has inspired confidence among investors and its stock price has more than doubled in the past year and is now at Rs 70 levels. Nambiar is betting on the familiarity of the BPL brand name to keep the ship sailing. In fact, it’s this high brand recall that persuaded the company to re-enter the market two years ago. “We always wanted to get back but seeing that our brand still had a good recall became the trigger for re-entering the space,” says Ganesh. Nambiar adds that even in 2015, nearly 18 million people still had BPL products: “They had a very good experience with the brand and wanted us to come out with new products.”

But every coin has a flip side. The low barriers that allowed BPL to re-enter the market also make competition today much fiercer than a decade ago because it’s equally easy for new players to enter the market. Take Vu Technologies, for example. It has also used an asset-light approach to introduce new products at a much faster pace. “The need is for speed. When Netflix launched in India last January, within a week we launched the Netflix-enabled remote and Vu Smart TV,” says Vu’s founder and CEO, Devita Saraf, one of Fortune India’s 50 Most Powerful Women in 2016.

With competition snapping at its heels, BPL might be forced to revisit its asset-light strategy. Some in the smartphone industry, for instance, have already done that. Xiaomi, one of the top five in the world in terms of volume in 2015, is increasingly becoming asset-heavy after losing out to rivals Oppo and Vivo. This year, the Beijing-based company launched its first in-house chipset, which is expected to power its future phones. Xiaomi has also moved away from the online flash sales strategy it popularised to open physical stores. It opened its first store in Bengaluru in May and hopes to have 100 exclusive stores in India in two years.

BPL might also have to take a leaf out of its competitor Whirlpool’s book and sell in traditional brick-and-mortar stores. The truth is despite the growing acceptance of online shopping, it only accounts for a small percentage of total home appliance purchases in India—most analysis puts the figure in single digits. Kapil Agarwal, vice president, marketing, Whirlpool India, says retail stores give customers the touch-and-feel experience, which is an important factor in categories like refrigerators and washing machines. Whirlpool has an asset-heavy manufacturing and distribution strategy, although Agarwal admits that the ability to outsource manufacturing has increased competition. “One approach is not enough, and brands like Whirlpool need to be omnipresent to tap into consumer needs,” says Agarwal.

Similarly, Vu made its fortune by selling exclusively online but it isn’t turning its back on old-fashioned stores altogether. The company racked up sales revenue of Rs 275 crore in 2105-16, two years after moving from offline sales to Flipkart, but Saraf recognises the importance of offline stores, especially as the company has launched high-end curved display TVs which cost over a lakh. “For consumers who want physical product demos, large screens, personal attention and a comparison with other brand TVs, offline provides a better experience,” says Saraf. “For national reach and aggressive offers, online is better. We are looking to increase our footprint both online and offline.”

Competition could increase further if BPL and Vu find an ecosystem of contract manufacturers in India to tap into. Nambiar says he wouldn’t need to spend on imports if he gets the parts in India itself. But, for now, he gives no hint of dropping his outsourcing strategy. The move to outsource was  a big change for someone who oversaw a large manufacturing operation a couple of decades ago. But then, change was what BPL needed then. And nowhere is that more obvious than around Bengaluru’s Church Street, which houses BPL’s corporate office in a building aptly named Dynamic House. Drive around the street and chances are you will miss a signboard pointing to a narrow lane that leads to the large BPL office. It embodies BPL’s new stealth approach to its business. Grow, but stay light on your feet. Sell, but don’t make.