Davey Brothers Watch Co.: The Case For Learning

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Davey Brothers Watch Co.1

(Revised May 2010)
In May 2005, Ravinder Davey, the young son of a shopkeeper was

contemplating to buy a photocopy machine and expand their existing
business. His father’s shop was located in Umreth village in central Gujarat.
Ravinder studied electronics in the Industrial Training Institute from a nearby
town. He was an apprentice for about four years, including two with Elecon
Engineering in Vitthal Udyoganagar, an industrial area about 50 km from
Umreth. He earned a modest salary of Rs 2500/- per month. Due to the
every day commuting, he suffered an acute health problem and had to be
hospitalized. After being discharged, it was decided that Ravinder would quit
the job and join his father’s shop and explore new business in the village.
The Umreth village, also the taluka head quarter, along with nearby hamlets,
has a local population of about 0.17 mn. The main occupation of the villagers
was farming, allied activities and trading. People from small villages and
hamlets around Umreth visited the village market to shop for routine
household material. Marriage shopping by those visitors was often a windfall
for the sari, garment, utensils and jewellery retailers here. However, at some
point, such business dried up.
The Davey Brothers Watch Co., a watch sales and repair business was
inherited by his father. With change in fashion and most youth shifting to city
for livelihood, the purchasing trends of villagers changed. The watch sales
business almost dried up and repair business hardly generated enough
revenues to meet living expenses. Later on (early 2004) his father decided to
1
Prof. Keyur Thaker of Indian Institute of Management Indore prepared this case as the basis for class
discussion to illustrate either effective or ineffective handling of management situations © Thaker Keyur,
2010. Email: thakerkeyur@yahoo.com, keyurt@iimidr.ac.in
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110-043-1
install a phone booth in the same shop. Initially, the phone booth business
did well as villagers often made calls to their children and relatives in the
city. But with easy availability of fixed telephone and cell phone connections
to villagers, coupled with reduced telecom tariffs, the use of the phone booth
declined - and so did revenues. It was felt that a photocopy business could
be easily set up in the existing shop without adding much to the overheads
cost and would do well with his existing business. This way Ravinder
expected to generate some more income, based on a review of the market.
His shop was located in the Panchwati market. There were three other
photocopying shops located in the same market. All the competitors seemed
to be doing well as their machines remained more or less occupied. The
Panchwati market mainly housed shopkeepers retailing garments, jewellery,
grocery, saris, footwear, utensils etc. There were not many offices around.
However, three bank branches, a Life Insurance Company branch and a post
office were situated within a 200-metre radius. A little further down, were
the taluka court and the police station. Two photocopy shops around
garnered business from them. A village school was located about half a
kilometre away and the Bhavans Science and Commerce College was at a
distance of about 2.5 km. Ravinder believed that he could get business of
about 100 photocopies a day on an average for 300 days a year.
Ravinder inquired in the market for the price of the photocopy machine and
installation expenses. There were varieties of brand-new as well as used, and
imported refurbished photocopy machines available in the closest mega city.
The brand-new machines of Xerox, Toshiba, and Canon makes were available
with a price tag that ranged from Rs. 50,000, to as high as Rs. 2,50,000,
depending upon the kind of features, quality and capacity. A good quality;
recent technology; imported; used (two to three years old) and refurbished
machine was available for 35,000/- Since Ravinder did not expect more then
100 copies a day’s worth of business, he was apprehensive about buying an
expensive, high capacity machine from the latest range. The new machines
came with a longer function life, guarantee, service and maintenance support
and lower operating costs. He thought that either an entry-level; brand new
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machine or refurbished machine would serve the purpose. Arranging enough

money to buy the machine on his own was not possible, hence he
contemplated a bank loan or would request help from his cousin staying in
the city. The five-year bank loan was available at an interest rate of about 15
per cent per year. He also considered the idea that his cousin might offer him
a five-year-loan at 10 per cent. The expected useful life of the refurbished
machine may be considered as five years. Upon request, Ravinder’s cousin
agreed to help him by financing the entire cost of the machine.
Since the machine was to be placed in his existing shop with about 110 sq ft
of space, there was apparently no additional overhead cost incurred. A phone
booth service is usually provided for long hours and therefore, the shop
would remain open from 9:00 am to 10:00 pm. Ravinder and his father
attended to the phone booth and watch business at the shop and felt that
they would be able to take care of additional customers of the new business
as well, without adding manpower.
JK photocopy paper cost 20 paise. The toner, which could last up to 25,000
copies, was available at Rs. 800/- per kg. The power consumption per copy
was estimated at 4 paise. The going photocopy rate in the local market was
Re. 1 per impression. If he were to charge the same rate, he may not
harness much business. The rates in the large city were as low as Re. 1 for
three copies and it was expected that the rates in the village to fall over a
period of time. Ravinder felt that it would be difficult to retail more than 30
photocopies per day. Unless he could land an annual photocopy contract
from any of the offices and banks in the vicinity, generating enough business
would be difficult. On the other hand, if he reduces the price to get more
business the profit margin will remain too low. Price war with other retailers
in the business was likely if Ravinder decided to charge a lower rate per
copy. Other maintenance cost in the form of consumables was of drum and
film, which needs to be replaced every two years, and would cost Rs. 800
and Rs. 2000 respectively. The total monthly electricity bill was Rs. 250 while
shop rent paid was Rs. 100 per month. There were many such refurbished
photocopying machines installed in nearby towns and villages. However, the
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availability of service engineers was difficult as service engineers operated

from the city, about 50 km away. At times, it took four to five days for a
breakdown call to be serviced. Business for such days would be lost. Such
repair and maintenance cost could be estimated to be Rs. 1000 per year.
Ravinder wondered what to do.

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110-043-1

Davey Brothers Watch Co.1

In May 2005, Ravinder Davey, the young son of a shopkeeper was

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machine or refurbished machine would serve the purpose. Arranging enough

availability of service engineers was difficult as service engineers operated

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