For any company, the decision to choose a new product-line should factor in two issues, One, does the company have core strengths that will help in launching the new product. Two, does the new product make business sense. Telco, like most other companies, took care of the first. It judged that it had core strengths in engineering and low cost manufacturing, which would help the Indica. Like most Indian companies, it also did not pay much attention to the second.

In the auto business worldwide, the money comes in from trucks and big vehicles like sports utilities. Cars - especially small cars - either lose money or just about earn their keep. In India, too, it is much the same story these days. Except for Maruti, which had historical advantages which helped it gainsufficient volumes, no other car manufacturer is making any money. Moreover, the margin on the sale of a single truck or LCV is many times higher than that of even luxury cars. In small cars, because of the cut-throat competition, margins are wafer thin.

Thus, Telco would have to sell a huge number of Indicas to even break even. And even after the break-even point, Indica's contribution to overall profits and profitability would probably be much lesser than trucks or its passenger utility vehicles. A case of what is good for India not being good for Telco. Of course, many Indian companies falter in new product launches because they also find it difficult to judge what their core competencies are. As a result, the decision to enter a new product area or market that is taken by a company often seems rather peculiar to an interested observer.

For example, some time ago, Singer India decided that its core strength lay in retailing chain across the country and also the Singer brand name. Hence, it took thedecision to launch a whole host of durables through its retail chain, all branded with the Singer logo. So far, it doesn't seem to be giving any of the other durable companies in its new market areas any serious competition. Misreading your core strength is one serious obstacle.

A more interesting situation, however, arises when two companies hit upon the same product category/market despite judging their core strengths to be very different. An example in the Indian market can be seen in the domestic water purifier market. Ion Exchange India entered it through the Zero B product lineup because it was in the business of water purification. Eureka Forbes entered it with the Aquaguard because it considered itself strong in the "home life improvement" business. So who won out? In the domestic market segment, Aquaguard is the better seller perhaps because it is more aggressive in consumer marketing. However, Ion Exchange is doing better from a purely profit & loss point of view. It is instructive that amanagement theory can influence a new product extension just because it seems to be a "fit" with the core strength.

The flaws of building a strategy around the model of core competency are increasingly coming to the fore. The core competency theory seemed immensely attractive when Gary Hamel and CK Prahalad first expounded it. Building a strategy based on what was the company's strongest area seemed a logical theory. In India, particularly, many business groups decided to adopt "core competency" with great enthusiasm.

There were two reasons for this. One, because Prahalad, an Indian, was one of the originators of the theory. Second, business groups were recovering from the licensing era diversifications. Therefore, they were particularly attracted to a theory which gave them an easy decision-making tool for which business to keep and which ones to get out of. However, as many of them have come to realise, the single biggest flaw in the core competence theory is that it seemingly ignores the state of themarket and the industry. That's why, the theory propounded by the guru of strategy Michael Porter is coming back to fashion once again. Porter's main point is that a company needs to build a strategy in the context of the forces shaping its industry's profitability.

So how much of a difference can the two models lead to in terms of a company's strategy. Look at it this way. Using the core competence model, Telco decided on building a new car. If it had followed Porter, it would have probably concentrated on trucks and sports utility vehicles (SUVs) like the Safari.

Hence, you can take Telco as the perfect case for testing the validity of the two theories. Five years from now, Telco's results will show whether core competence is more useful or Porter's model is more valid for creating a strategy.