Rule of Three

Three’s company, rest’s crowd. From Bikes To Airlines To Cement, Troikas Corner 80% Of Market. Krishna Kant & Vivek Sinha The Economic Times Tuesday, February 14, 2006. What's common between Hero Honda, Bajaj Auto, TVS, Maruti Udyog, Hyundai, Tata Motors, LG, Videocon, Samsung, Nokia, Motorola, Jet Airways, Indian Airlines, Air Deccan, Holcim, Grasim, India Cements, Taj Hotels, ITC Hotels and Oberoi groups.

All these companies are part of a troika that dominates their respective sectors, with a combined market share of up to 80%. From bikes, cars, consumer durables, mobile handsets, paints, tyres, steel, aluminium, airlines, hotels to cement, an increasing number of sectors in India are now led by a set of top three players, with the rest of the companies being forced to become niche players or also-rans.

Says AT Kearney (India) managing director Vivek Gupta, “It is a natural phenomenon in a growing economy, though we cannot say it is a sign of maturity. A sector starts with a few players and then there is a burst of new players. It is followed by consolidation, and ultimately a handful remain in the game,” he adds. Until recently, in most of the sectors, the market share was dispersed among half-a-dozen equally strong players. Mergers and acquisition combined with general market dynamics have, however, now concentrated the market share among the top three.

Marketers call it the Rule of Three. Economists call it oligopoly — the dominance of a few players in a sector. Though internationally it has always been like this. Recall the big three in the American automart or the dominance of Federal Express, UPS and DHL in the global express courier and logistics market. A similar pattern is now emerging in India. Take the passenger car market, for example. Though there are over a dozen players in the industry and new players entering every year, Maruti Udyog, Tata Motors and Hyundai together account for over 85% of all cars sold in the domestic market.

During April-December ‘05, these three accounted for 5.56 lakh cars of the 6.23 lakh sold, or 87% of the total market. Ditto in motorcycles. Hero Honda, Bajaj Auto and TVS Motors. The three now account for over 90% of the market. Out of every 100 motorcycles bought in India during the April-December period, 92 were either Hero Honda or Bajaj or TVS. Says Hero Honda vicepresident PS Sunder, “It didn’t happen by design and over a period of time we (top three) nurtured the network (dealers and customers) better than the others.” In the paints sector Asian Paints, Goodlass Nerolac and Berger dominate the market. Over the years the sector has gone through a consolidation where some players have got extinguished while few others have been relegated to niche segments.

The phenomenon is not restricted to manufacturing sector alone. Service sector is witnessing an equally large polarisation. Till a few weeks ago, the passenger sector in India had half a dozen thriving players with the new entrants eating away the marketshare of the existing players. Post Jet Airways and Air Sahara deal however, the top three- Jet-Sahara combine, Indian Airlines and Air Deccan rule the roost with over 80% of the domestic aviation market.

Move over to the hospitality sector. Despite the expansion of international chains, the three desi majors — Indian Hotels (Taj), ITC Hotels and Oberoi Hotels continue to dominate the luxury and business hotels segment. “Every sector passes through an evolutionary and revolutionary phase. In the latter there is either a steep growth or a steep decline. Those companies survive who are able to manage the growth or the decline phase as has happened in airlines,” says Jagdeep Kapoor of Samsika Marketing. In consumer durable LG, Videocon and Samsung are by far the drivers of business. Says Girish Rao, head of sales at LG Electronics, “In durables we have seen single product companies going down the ranks. The three top players are also the ones who have a multiproduct portfolio across segments.”