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|July 14, 1999||
The Rediff Business Interview/K Mahesh
'India's become like Italy: governments come and go, and industry takes care of itself'
When the automobile industry and its ancillaries were in turmoil due to sharp dip in sales in 1998-99, Sundaram Brake Lining's net profit rose by 65 per cent, turnover at Rs 685 million rose by almost 16 per cent, and exports worth Rs 250 million were up by 45 per cent.
The 1974 born TVS group company led by
The 1974 born TVS group company led byK Mahesh, chairman and managing director, has now firmly set its sights on the exports market, and is foraying into the American and European markets in a big way. The company is all for eco-friendly products, and makes asbestos-free brake linings and other products. It is also focusing on R&D and lean management. Shobha Warrier met Mahesh in Madras to find out more about the enterprise's success formula and the multi-faceted tycoon's vision for corporate India in the New Millennium.
Outside world has always looked at Indian products with very strong reservations. Basically, in the first seven years, we didn't put our brand name at all. We were giving our partner Abex's brand name. Ten years ago, we introduced the TVS brand name in Australia and it has picked up from there. And now we insist on the TVS brand name for everything. And in some cases, we accept co-branding. For example, Iviko in Australia buys brake linings from us and they sell it as Iviko brake lining made by TVS. So, we go for both.
It was very tough. But it was fun. This is what I tell my boys, nothing boosts your ego than exports. It makes you feel good that you are exporting to 45 countries.
Brake lining is a safety critical item. So, they hesitate to buy. But then, in `70s and `80s, we used the leverage that the know-how came from Abex. Now we don't even talk about it. See, nothing is easy in the export market. You will have to work for it. The biggest problem is that there are always fly-by-night operators in export which gives the serious exporters a bad name. But that is part of the game. You will have to prove your own track record that your quality is different.
We felt, if we wanted to grow, we needed the world market because India is going to be limited by the number of players.
Is it not advantageous for the automobile component units when you have several car-makers in India?
I felt at one time they were bringing the wrong cars to India. In the early `90s, international news magazines said there were 200 million middle class people in India. But the definition of the middle class can be very confusing. The middle class in the US earns about $40,000 which is about Rs 1.6 million whereas the middle class in India earns about Rs 250,000 to Rs 300,000.
I think the MNCs got it all wrong. So, they brought the Escorts and the Astras to India. Only the Santros and the Matizes and the Indicas will survive here.
And we really do not know how the scenario is going to develop. So, we decided to concentrate on exports. Our target is to reach 50 per cent exports in three years time.
Outsiders talk about India as a huge market.
In the last three years, the production of heavy commercial vehicle has come down by almost 40 per cent. In my opinion, it will only grow by 5-7 per cent in the next three years. Yes, there was euphoria and it resulted in tremendous over-production. Now it has levelled off.
There was slight improvement in April, May and June but we would like to see it for a six-month period to see how it will shape up.
For example, there is no government now. The questions in everybody's mind are: Who is going to form the next government? How stable is it going to be? Will there be any activity in the infrastructure segment? Unless infrastructure is taken care of, vehicle movement is not going to take place. So, we still have to look at the overseas market.
Many economists say industry should learn to work irrespective of what happens in the political front.
I think we have become more and more like Italy where governments come and go and industry takes care of itself. But then, the government still controls a lot of things in India. It will take a couple of years for us to get used to: a) how to manage a coalition government; b) how the industry can operate without a government.
For the industry to operate without a government, I think, a lot more public sector units will have to be privatised so that the economy is free from the government control. There are still a lot of approvals required from the government.
Did liberalisation help you in your exports in anyway?
Liberalisation did not address exports at all. There is still a lot of paper work to be done and you know, in exports, you don't need anything more than reducing the paper work.
A lot of companies in India do not want to go for the hassle of exports because it takes you a minimum of 2-3 years to develop. You must have the patience. If you get into the export market, it will take five years to establish your name.
Buyers do not relate liberalisation vis-a-vis exports. One more thing, you don't read about India once you travel outside India. People here think that everybody's interested in India but they are not. I was in America for three weeks. There was not a single news item except the Kargil issue in a small little column! China is news but India is not news! To the outside world, India does not count. We don't seem to accept the fact that India does not count. We are not an economic power, we are not a military power, and we are just a marginal player only. We are not in Asean, we are not in any trading blocs. But it feels good for us at Sundaram Braking to be exporting to 45 countries in the world.
Your agreement with Abex Corporation has ended, and you are entering the American market. How different is the American market from others?
The American market is much more price-competitive than Europe. It is twice as big as the European market but the price is about 20 per cent less than the European market. Still, it is a market you cannot neglect. It is very huge. The American market for heavy-duty truck block is $200 million. And you are just looking at 5 per cent of the market in five years time, which is $ 10 million, Rs 450 million.
Your company takes pride in its lean management. Please elaborate.
Jim Omax and Daniel Jones wrote a book, Machine Will Change The World about 15 years ago. The book compared various vehicle manufacturers in Japan, Europe, elsewhere. They showed why the Japanese are more efficient and how one German manufacturer was very inefficient. Two years back, they wrote a book called Lean Thinking which was nothing but the Toyota manufacturing system which the authors had been studying for the last ten years. They wanted to educate the industries in the west on how lean manufacturing works.
Dan Jones came to India about two-and-a-half years ago and gave us a general guideline on which direction we should take. After that, we have had a productivity improvement of 150-200 per cent in the areas where we have implemented the theory!
In the next 3-4 years, we should become world class in terms of productivity.
For example, in the passenger car lining section, five people made way for three and productivity per man has gone up by 164 per cent! When we reduced space by about 45 per cent, the scrap come down from 10,000 tons to 1, 500 tons.
The overall concept of lean manufacturing is, get rid of waste and non-value-added activities. There is no end game in this. You have to keep on eliminating waste until you become more efficient from where you can compete with the world.
It is basically eliminating finished goods, eliminating intermediary storage and also improving man-machine interface. Now they are talking about lean machines too.
If you buy a new machine to replace an old machine, your new machine should not cost more than 20-40 per cent of your old machine.
Unless you can innovate and improve the machine and make it lean, you will not become cost competitive. Experts are talking about lean design, lean distribution, etc. The idea is to eliminate waste at each stage so that the customer gets value at a lower price. He is not going to pay you for the non-value-added activities.
When do you expect the Indian economy to come out of recession, especially in the automobile sector?
What you need is correction. Three years ago, there was an over-production of commercial vehicles which the market could not absorb. If the economy grows at 5 per cent, the commercial vehicle market can grow, may be at 7 or 8 per cent. But it can't go at 25 per cent at which rate it grew three years ago. So, you need a correction.
No infrastructure activity has taken place in the last few years. So, basically we are falling in line with the GDP growth.
Do you see a bright future for the Indian economy?
If you are looking at only India, you grow at the Hindu rate of growth. If you want to grow anything more than that, you have to look at the global market.
But today, don't the global sentiments affect the local market too?
Once you are in the global market, you start worrying about every country. If there is a problem in Kosovo, you are worried. We were looking at Bosnia but now we have dropped the idea. So, you start monitoring every country. Luckily, we never exported to the Asean countries, so the Asean crisis had no impact on us at all. So far, we have chosen the safe continents, Africa, Australia, Europe and now the USA. We can always balance one against the other but when the whole thing turns down, everybody suffers.
Photographs by Sanjay Ghosh
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