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India Inc's new credo: It pays to be a miser

July 23, 2008 11:05 IST

Future Group Chairman Kishore Biyani says he takes immense pride in the fact that he is a miser. As a slowdown towers over the economic landscape, Biyani says the biggest worry for retailers these days is the increasing cost of doing business, and passing on the costs to your customers is no longer a feasible solution.

Biyani's company has distributed thousands of T-shirts among his employees with the inscription: Garv se kaho ham kanjoos hai (Say with pride that you are a miser).

India's retail king, who owns Pantaloon and Big Bazaar, has taken that as a religion: his stores are moving out of expensive locations, have appointed consultants to save on electricity costs ('the right kind of light can do wonders to illuminate your balance sheet') and have cut people cost by 1 per cent by linking salaries with performance and going slow on recruitments.

"Human capability is infinite and multi-tasking is the order of the day," Biyani says.

The measures are helping the company save Rs 150 crore (Rs 1.5 billion) a year and Biyani says cost management is the most potent competitive tool that companies have at this point of time.

That's precisely what India's largest automobiles company, Tata Motors, has also been telling its employees and component suppliers over the past few months.

Weighed down by an economic downturn, a sharp rise in input costs (steel prices have gone up by over 50 per cent in the last one year) and a slump in sales following a fuel price hike, the automobile industry has gone in for aggressive cost savings.

If competitor Maruti is grabbing headlines with its 'one component, one gram' drive that will reduce the weight of each Maruti car by 2.5 kgs and result in a net savings of Rs 10 crore (Rs 100 million) per supplier, Tata Motors has adopted a 'total cost corporation' culture.

Tata Motors Executive Director (Commercial Vehicles) P K Telang says the measures to improve operational efficiencies have, for example, helped reduce the time taken for manufacturing ACE, the company's hugely successful mini-truck, by as much as 25 per cent, thereby reducing costs.

He is these days making frequent trips to Pune to brainstorm with his senior team members on how to reduce costs further. Result: An exercise is currently on to explore the possibility of changing some of the components from steel to plastics without compromising on safety and comfort.

The company is also close to changing the metallurgical composition of crank shafts, connecting rods and front axle beams used in its trucks to the less expensive chrome steel or carbon steel, thereby saving around 10 per cent of manufacturing costs.

Cost management is, of course, nothing unique for companies like Tata Motors (for example, the manpower per equivalent unit of commercial vehicles has improved 50 per cent over five years and the company has achieved total cost savings of around Rs 2,000 crore or Rs 20 billion in this period), but Telang admits the pace has gained a huge momentum now.

If the automobile industry is on an overdrive to cut costs and improve efficiencies, the steel companies cannot obviously be far behind with iron ore and coking coal prices shooting up 8-10 per cent in the past three to four months.

Transportation costs have also gone up 10-15 per cent in the past one month alone.

JSW Steel Finance Director Seshagiri Rao says saving costs is the only mantra these days. The various initiatives that the company has taken are expected to save about Rs 1,000 per tonne of steel manufactured.

Some companies think the best way to cut costs is to expand. The cement industry, for example, has added 30 million tones of additional capacity by setting up new plants closer to the market to save on transportation costs, and by generating captive power to bring down the electricity bill. JSW Steel agrees.

The company, for example, is setting up a beneficiation plant, which will help it to process low-grade iron ore. The plant is expected to go on stream by October-December this year.

The company's captive power plant, which will be on stream by November this year, is also expected to result in Rs 40 crore (Rs 400 million) savings per annum.

The railway siding will result in an additional saving of Rs 300 per tonne in transportation costs alone, Rao says.

Checking manpower costs is also on top of the agenda. But many of these companies say hiring freeze and pink slips are only a short-term solution.

Telang remembers what Chairman Ratan Tata said when Tata Motors suffered a Rs 500 crore (Rs 5 billion) loss four years back. Tata told his top executives to give generous increments that year so that people don't leave thinking that it's a sinking ship.

The training budget in Tata Motors has in fact gone up more than twice in the last two years. Besides, the permanent to flexible manpower ratio is being maintained at 70:30.

Several other companies are keeping the increments low but are changing the mix to a higher cash component so that employees don't feel the pinch.

While some others are recruiting more trainees to keep the overall cost low, companies such as ICICI Bank have slashed bonus, reduced increments and frozen promotions.

Several big Indian companies are also realising the power of small initiatives that can have a big impact. And these initiatives range from reducing air travel to switching off ACs sharp at 6 p.m. to even withdrawing tissue papers in office canteens and toilets.

Miserliness, it seems, is being redefined.

Shyamal Majumdar in Mumbai