Titan - The Outsourcing Journey

Taking into account the above factors, Titan had no other option but to settle for outsourcing. Around the same time, Titan decided to change its focus to generating more volumes rather than value. This was because the growth in the premium segment of the watch market, which was Titan's mainstay, had been below its expectations. The company wanted to build up a base in the lower value segment and extend its reach. According to company estimates, outsourcing worked out be around 30% cheaper than manufacturing in-house.

Another reason why Titan wanted to reduce its focus on manufacturing was the high employee costs - 11.2% of its revenues in 2000. This was because in the days when the company had no other option but to manufacture, the Hosur factory had a huge worker base. In 1997 and 2000, the company entered into various wage agreements with the workers' union. As a result, even a low-skilled blue-collar worker at the company earned as much as Rs 10,000 per month. This increased overall employee costs. According to analysts, this was alarming because since 1996, Titan had neither made any fresh recruitments nor replaced close to 200 supervisory and managerial-level employees who left in the same period.