Keynote
address on the occasion of 54th AGM of Process Plant and Machinery Association
of India - 29th September 2018 at Hotel Courtyard by Marriott,
Mumbai.
I am very privileged, honored, delighted
to be invited to this Association with a history of 54 years. An association with an estimated capacity of
6 Billion $ and vision to become preferred supplier of systems, equipment and
services to global process industry. I
believe this association and its members have already made a mark on global
arena and my congratulations to all members and past and current office bearers
and to you Mr. Suri for leading such an illustrious association. Like the chemical industry which I belong to,
you are also a”traditional” industry which will continue to be the bedrock of
any economy, particularly developing economy.
I hope to share some thoughts this evening on what I think it will take
to sustain success in future.
To my utter surprise, I learnt the other
day that it took India, 6 decades after independence to achieve a GDP of 1
Trillion dollars. This happened only in
2008. The next 1 trillion dollars was
added in 7 years in 2015 and currently we are just over 2.5 trillion. The next trillion dollars we expect to add in
6 years by 2021 the fourth trillion dollars it is forecasted will be added in
just 3 years. This should give you some
idea of the speed of growth that we have achieved and likely to in future – 60
years for the first trillion, 6 years for the 3rd trillion and just
3 years for the 4th. India
will soon be one of the top 5 global economies in the world. So, there is no better place to be in that
India now and for the next couple of decades.
Yes, we are not without challengers, yes there are dark clouds that
loom-global trade wars and the reversal of globalization, ballooning oil price not bad for some of you as investments start to happen in oil industry),
depreciating rupee, NPA’s of banks reducing liquidity to name a few. These factors may have temporary dampening
effect but the trajectory of growth of our country is unidirectional and
unstoppable. Not just the growth of the
economy but the composition of growth planned is of interest to all of us. As you are aware, there is a vision / target
to have manufacturing GDP to contribute to 25% from the current 15%, this
translates to a manufacturing economy of 1 trillion dollars by 2028 from the
current 300 billion dollars. In other
words, we will need to add 700 billion dollars of manufacturing GDP which by
most conservative estimate will require at least a trillion dollar investments
in assets. As members of PPMAI this is
indeed a great opportunity. We in the
chemical industry are excited about this prospect.
That is the opportunity but how do we
capitalise on this opportunity and excel in what we do. This is the topic that I wish to spend some
time as I believe that what we did to succeed in the past will not necessarily
be a receipt for success in the future.
To do this, I am going to borrow lessons from one of the world’s most
robust economy – Germany and more importantly the mid size companies of Germany
better known as “Mittelstand”. By the
way, Germany today is the world’s second biggest exporter after China despite
high labour costs and strong currency.
Many of these companies survived two world wars and several economic
booms and busts. So what makes them so
successful? Surprisingly there are only
a handful of research that has studied the enduring success of these
companies. I have largely borrowed from
two sources: A book “Hidden Gems” by Hermann Simon in 1996 and research of
Professor Chistoph Muller of St. Gallen Business School in Switzerland.
One of the first lessons or feature of
these companies is that they occupy a Niche and excel in what they do – For
example, Dorma makes doors and all things related to doors; Muehle which makes
shaving brushes. Tente specializes in Castors for hospital beds, Koenig &
amp printing presses. Utsch in license plates, Aeroxon in fly catchers,
Industrial chains (RUD) and high pressure cleaners – Karcher. Wiesheu, a company that makes ovens for
in-store bakeries, decided over 30 years ago to specialise in this machinery
having previously made butchery equipment.
With this niche approach and a B2B business model, these companies avoid
head on competition with big players. In
fact, the motto of these companies seems to be “Don’t dance where the elephants
play”. Niche markets may seem tiny in
one individual market but can be very attractive at global or regional
levels. It is no surprise that many of
these companies are global leaders with more than half their revenues coming
from outside Germany.
A second feature is that they continuously
focus on new technologies and improving what and how you produce. German Industry association, the BDI says
that at least half of these companies work continuously on innovations and
leading SMEs have at least five times as many patents as ordinary
companies. They do not necessarily do
all this themselves but in close collaboration with academic institutions. Plasmatreat which makes plasma surface
treatments for various products, cooperated closely with researches at the
Fraunhofer Institute for Manufacturing Engineering and Applied Materials
Research to refine the processes they sell. We have excellent academic
institutions and talent that can do world class research. But their contribution to helping shape
industry has not been significant as one would have expected. Academia-industry collaboration in our
country is woefully poor. A key reason
is that we don’t necessarily speak each others language nor understand each
others needs. Our educational system
which kills most of our inherent curiosity renders most of us blissfully
isolated in our own worlds. However, I
believe this is changing. (Anecdote on meeting with DG of CSIR). Today there are start up ecosystems being
created at IITs. IISc and even business
schools. Last week I was at the launch of an initiative called THINKAG, a
platform to bring start-ups and innovators in agricultural area with established
players, private equity players and angel investors. May I request PPMAI develop a platform which
will foster collaboration with Academic institutes. I am convinced such a move will be a key to
taking this industry to leadership position in the years to come.
The third lesson that emerges from the
study of these successful mid-sized German companies is a culture of striving
for and focus on continuous improvement.
Theodore Levitt, one of the doyens of Harvard Business School observed
that “sustained success is largely a matter of focusing regularly on the right
things and making a lot of uncelebrated little improvements every day”. A challenge for all of us is to remain
“unsatisfied with start-quo” in what we do.
It is this state of mind that will inculcate the culture of continuous
improvement.
Listening to customers, co-creating to
meet their needs is the fourth important success factor of these
companies. BHS corrugated with 1900
staff in US, China, Brazil and Czech republic makes machinery for producing
corrugated cardboard. The company head
spends at least quarter of his time travelling the world to understand customer
needs in different countries. BHS
corrugated has discovered that even such a standardized product has to be
manufactured differently in different regions, with European and US customer
wanting high performance machines with lots of settings, while customers in
Asia and Africa are willing to accept slower machines that are cheaper. At one time, BHS had trouble getting orders
from Chinese customers. Since they
adapted their machines for that market, though they have had no problems. The CEO argues that “you won’t become a world
market leader with one product for all markets”.
Thus far I spoke from what I read and now
let me shift gears and share some perspectives as a customer of this
industry. BASF is today the biggest
chemical company with a global sales of 60 Billion Euros and product portfolio
ranging from commodity chemicals to high end speciality chemicals used in Auto,
electronics, construction and agriculture to name a few. We are classic brick and Mortar company with
350 manufacturing sites across the world and with a capex spend on an average
of 4 Billion dollars in a year. In
India, we have invested 2000 crores in the last 4 years in creating assets for
speciality chemicals. In addition, BASF
in India is increasingly becoming a global service provider for several functions
which includes Design, Engineering, Project Management and procurement of
fabricated equipment. So I and my team
have a keen interest in your success, so we can bring more sourcing to India. In our experience, following are some areas
of that if focussed will help this cause even more.
For example, improving project management
and planning skills which will help to deliver on timelines promised.
Better and honest communication with
customers – credibility is built when there is honest communication and full
transparency.
Right staffing – In his famous book, Good
to Great, author Jim Collins says that successful leaders first make sure that
the right people are in the bus (bus here being an analogy to your business)
before deciding where you wish to go.
Hiring right people means hiring the right share or “Thinkers” and
“doers” and creating an organisational culture where employees can excel.
Good safety practices – recognising that
safety is more of a behaviour and organisational culture topic which is
inculcated through training and rigorous practise that has made some behaviours
part of the DNA. For example most of us
at BASF automatically hold the railings when we climb up or down stairs. (Hikal
story).
Eliminate waste, efficient use of space and
resources and housekeeping. (QB House – Japanese hair cutting saloon reduced
haircutting time to 10 minutes by a standardised approach which maximises use
of space, eliminated use of water, eliminated periodic cleaning by sucking all
hair through modular vacuum. With this
they were able to increase revenue per barber by > 50%).
Finally, key to sustained business success
also is how we anticipate, and adapt to new trends. Today, two key trends that cannot be ignored
in any business are sustainability and digitalisation. Sustainability concerns are bringing new
regulations that are making products / practices redundant while opening up
opportunities for new innovations – plastic, chemical industry in China,
Bharath VI impact on auto industry.
Digitalisation is changing almost every aspect of how we innovate,
manufacture and sell. It is redefining
markets creating transparency that was unimaginable a few years ago (track and
trace on transportation), am sure PPMAI and members are awake to the new
possibilities and are evaluating how to leverage these trends to leapfrog to
the new world.
In conclusion, I believe we are on the
threshold of another phase of accelerated growth in our country which will open
up many opportunities for all of us.
However, winners of tomorrow will be ones who identify and excel in a
niche as opposed to being one of the herd; Winners will be ones who listen to
customer and market needs and adapt their product and services, Winners will be those who constantly
innovate, Winners will be ones who have safety and continuous improvement in
their DNA. I have no doubts that each
and every one of you will be a winner with the support of PPMAI.
I wish you the very best and god bless.