The atmosphere inside the headquarters of the Agganval Group in Nepal was thoughtful. The top leadership of the Group was present in the conference room in Sanepa, Kathmandu. The conference room was on the third floor; it was a well-appointed hall with huge windows that overlooked the peaks of the mighty Himalayas outside. The meeting was chaired by the Chairman-Managing Director (CMD) of the Argarnal Group, Mr. Vinod Agganval (VA.). The Group had a commanding presence in the county with a revenue turnover, close to 2% of the mountainous county's gross domestic product. The Group had a diverse business portfolio, which ranged from construction, education, and FMCG to consumer goods. In the last sector, they tie-up with AB Electronics Inc, a famous Korean manufacturer of electronics and house appliance items. As per the tie-up, the Agganval group imported products from AB Electronics, which they distributed in the local Nepal market. They also had the responsibility of providing after-sales service for the products. After-sales service had two components. All AB products in Nepal carried a warranty of one year The costs of all repair and spares during this period were initially borne by Agganval Group, which was later reimbursed by AB Electronics. All other repair activities were fully paid for by the customer. The other distinguished guest on that meeting was Mr. Moon H. Lee, a senior General Manager with AB Electronics Inc. under whose jurisdiction the sales territory of Nepal lay. AB Electronics was a successful brand in Nepal, having achieved impressive market shares across product categories like TV refrigerator, and washing machines. However, a large part of its success came from urban centers like Kathmandu and Viralnagar. The brand struggled in the upcountry markets. Mr. Moon H Lee (M HL) turned towards Mr. S.C. Saboo. Saboo headed the AB business for the Agganval group. MEL: Mr. Saboo, I have always thought very highly of you and continue to appreciate your performance. But, for the last two quarters, I do not see your business growing at its old pace. Things have slowed down. Mr. Saboo, from his prior experience with Mr. Lee, knew that by 'your business,' the senior Korean manager meant 'our business.' The mode of address acknowledged his contribution to the success of the company's business in that county. Saboo: Sr, the Chinese have now entered the market and are causing many problems for us. Their products are cheap and are very popular in rural areas of Nepal. We are losing whatever customers we have there. MBL: That is an issue Mr. Saboo. I wanted to raise that point here, good that you have initiated the discussion. We are a city oriented brand here. You have done quite well in the more significant markets like Kathmandu. What do you think are the problems with the rural market? Nearly 80% of this county is rural. You have no option but to do well here.

Saboo: Sir, We have talked about this point many times. The village market is very price-sensitive, and AB products are costly. That is where the Chinese competition is bitting us badly. !UHL: But then our products have better quality also. They last longer. We also offer a better after-sales service. Ramesh Shrestha (RS, the Sales Manager): Sir, I want to say something about service. We do have an excellent service team. All our service engineers are competent and highly dedicated. Korean experts have trained them. The quality of service is not a problem. It is the delivery of service, which poses a challenge and is an important reason why we are unable to make much headway in that market. Ma: That is an excellent point, Mr. Shrestha. You have hit the nail right on the head. If we are priced higher, we needed to excel on all counts. We need to fix this after-sales service issue. What is the current system? By the way, how do the Chinese brands provide service? Saboo: Sir, the Chinese brands do not provide any service or warranty. If the product gives any problem, the customer has to get it repaired through local technicians. In any case, their items are much cheaper, so the customer does not care much. On our part, we have three service centers at Kathmandu, Birgunj, and Virainagar, to cover most of Nepal. Our service engineers are based at these locations. They have their travel schedules, which account for their visits to upcountry places to undertake repair work. If the repair involved is cumbersome, the product is brought to our service centers where they are shipped back to their owners after repair. NIEL: That is the real problem, Mr. Saboo. How much time does it take for a faulty item to be repaired? Saboo: If the repair happens on-site, it takes about four days on an average. The service engineers cover all markets under their purview in a week, which means their frequency of visit is around once in seven or eight days to a particular location. If brought back to the service center, it could take about ten days. NffIL (smilingly): There is an opportunity inside the problem. If you can solve the problem, you shall have a fantastic business opportunity. Now listen, we have to find a solution that would help us tackle the Chinese competition and, in the process, strengthen our service to create a significant source of competitive advantage. We must deny the Chinese a base here. Once they settle down in the rural market, they would use that as a launchpad to attack our business. Saboo: Okay. I agree. But the problem is Nepal offers hilly terrain, and here tray dine, especially in the rural areas, is difficult. The roads are mostly undeveloped and often get blocked if landslides happened. The situation turns worse during the rainy season.

MTh: How do the local people manage to repair these items? Saboo: Well, there are some technicians in most local markets. However, they are not very well trained and cannot handle sophisticated products. They mostly managed black and white televisions and old refrigerators. MHL: That is the opportimity. We shall now create A B Service Points all across the country. The Service Points shall be owned by such local technicians whom you just mentioned. We shall provide them with training and high-quality tools. The customers shall get service from these Points. That would reduce their waiting period to a day or two. Saboo: That is an exciting idea, Sr. But how can we supply spares to them? Min: Why? What is the problem with them? They would buy them from us. That would brine in additional revenue for the Aggarwal group as well as AB. Saboo: What about service during the warranty period? This service is free. We even don't charge for the spares. Currently, our service engineers are headline this, and we can depend on the reports supplied by them- But in the Senice Points proposed by you, the owners of such Points would be independent technicians. There is a significant worry they would abuse the system. The unscrupulous ones would fill fraudulent warranty period claims to obtain free spares, which they would sell later. MHL: I see your point, Mr. Saboo. Thank you for pointing it out. I can understand it would be difficult for us to monitor thuse things from our city-based service centers. MHL thought for some time before resuming. MHL: Okay, we shall do it this way. All repairs at the Service Points would be chargeable. If the customer wants a warranty period service, they have to wait for the company service person from the city. Right? Saboo: I think that should work. NIEL: You should be careful about the way your senice people work. Some of them might feel threatened by the Service Points and may end up bad-mouthing them. We need to communicate very carefully that their interests are not being adversely affected. They should cooperate with the Service Points and not see them as competition. RS (Ramesh Shrestha): This would have an excellent downstream effect on sales, Sr. The customer would be happy to get service. The AB Service Point signboards shall be there everywhere and create a good publicity buzz. The dealers would also stock our products without any WNW. And finally, these service point owners would start promoting our brand to all customer prospects. That would be a win-win for ever one

Analyze the above situation using the Open system approach. State the pros and cons of the decision to set up AB Service Points as envisioned by Mr. Moon H Lee.