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BW Businessworld

"Have Deep Roots In India"

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Electrical and electronics technology firm Siemens began its tryst with India as far back as 1867 when Werner von Siemens laid the first telegraph line between London and Calcutta. Today, Siemens has a presence in 190 countries, but the Rs 12,000-crore India subsidiary is its only listed entity other than parent Siemens AG in Germany. Siemens India is a mirror image of its parent in terms of offerings and portfolio. Its 18,000 employees and 23 manufacturing facilities cater to sectors as diverse as infrastructure, manufacturing industry, cities, energy and healthcare. Siemens India’s recently appointed MD & CEO Sunil Mathur spoke to BW. Excerpts:

Your 23 factories say a lot about your company, but how Glocal is Siemens in India?
About a couple of years ago, Siemens upped its stake in its India arm from 55 to 75 per cent with a billion euros on the table. In terms of return on investment, it is a terrific responsibility we have got now to our shareholders. The global CEO has chosen to be on the board of Siemens India. Another global board member who is the head of the infrastructure and cities sector is also on the board. And we have yet another global board member on our board too. We could not have asked for more attention and more commitment from the parent company.

We believe we are an Indian company because we have deep roots here. Originally, we started off by benefitting from the innovation and technology that Germany had, taking their equipment and selling it in the Indian market. More or less acting as traders.

However, there are other international players here as well and you can only compete with them for so long. That is when we started the localisation programme. Taking the factories in Germany and recasting them in India, to Indian conditions. So, we took the technology and the products, split them apart and optimised them in terms of costs, labour arbitrage and local sourcing. This worked until we started discovering a whole lot of Indian players coming out of the woodwork. They were operating in a completely different market segment from the segment we were in.

We had to revisit our strategy. We said may be we do not need to be only in the premium segments. These local players have international aspirations and unless we are competitive against them, local for local, we will not be competitive against them internationally. We started a programme called SMART where we design, develop, manufacture, source and deliver products in India. It ran across segments. In healthcare, for instance, we are doing a low-end X-ray machine, with no bells and whistles, in Goa. There are products like that across the board.

Do you take a global platform and rework it or do you do core R&D here?

It is a classic question of whether we take a Mercedes Benz, strip it down and try to create a Nano out of it, or we do the reverse, and try to create a Nano bottom up. This is the difference between Phase-I and Phase-II that I mentioned. Our first phase was when we were taking the international products, stripping them down and trying to get the benefits locally until we came up with SMART, which is bottom up. Try getting a guy who is designing a Mercedes Benz to think about a Nano. It is impossible. A guy who has a beautiful office in the Alps cannot dream of how a Metro in Mumbai works with 6 million passengers a day. That is more than they carry in a month in Germany. We have 4,000 people in India involved in this.

Has SMART delivered so far?
It is a continuum. It is complimenting our growth strategy. In switches and switchgear items, we would have lost marketshare to local competitors had we not come up with this. The fact is, we have not lost, we have marginally gained marketshare overall as a company.  A lot of switchgear products have come out of it; products for steel and rolling mills. We are doing a lot of engineering for global power plants out of India through some 750 engineers.

For those who have designed a Nano, it is not so difficult to start dreaming of developing that Nano into a Mercedes by putting in airbags, air-conditioning, etc. That is why you need to come down and tackle them in their space, as these guys will start getting into hi-tech as well. That needs a different price level, which means we need a different cost level. You are not talking of cutting cost 5, 10, 15 per cent. You are talking of 40 per cent. That comes from using different material, different substitutes.

Which area saw the emergence of maximum local competition?

It is not in power generation, distribution, Metro, railways or in high-tech healthcare. It is more in industrial products, switchgear items and motors. It is also in transfer of technology in rolling mills and the metals business. We have centres of competence in Europe and the US. They were designing, engineering and project-managing rolling mills around the world. We said why do we have to have this competence in the most expensive parts of the world. Can’t you transfer the centres of competence from those countries to India?
 
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The slowdown in infrastructure has affected your topline as well as bottom line. How have you tried to deal with it?
The important thing to do is to keep morale up. We are continuously going and talking about the big picture. Siemens globally looks at it as a blip in the overall big picture of the country. India’s 5 per cent growth rate is okay but this country ought to grow faster. The prime driver of that growth has to be infrastructure — road, rail, airports, power, efficiency in manufacturing, more manufacturing and healthcare. We are present in every single sector there. That is why we are absolutely upbeat on the market.

Which part of Siemens India is the biggest hope in tackling the tough macroeconomic environment?
The energy sector. And I see tremendous potential in railways, Metro, etc. We have got a sector called infrastructure in cities. If you look at the cities here, the demand is enormous; stuff that can be done from integrated traffic management to smart grids to building automation and energy efficiency. We are there. We have demonstrated in cities around the world that we can work with cities to make them more liveable and more efficient.

Any breakthrough in the cities along the Delhi-Mumbai corridor?
It is happening surely and steadily... step by step. It is a project which is probably one of the largest in the world. The government is being very cautious and measured. We are working with them.

What is behind the 13 different entities in India?
We started, things evolved. Over a period of time, acquisitions happened globally. Those companies were bought here. Local companies were bought. Before we knew it, we had 23-24 factories in the country. We should be able to use the synergies of all the Siemens entities. But we also have shareholder value of our publicly listed company to consider. That is why we go case by case to scan which of the Siemens companies can bring synergies.

Is there a corporate strategy unique to India?
We are very active in governance. We are working with companies which are like-minded and want to do clean business in a volatile environment. There are integrity pacts where we are talking to customers asking: are you willing to sign a pact to be absolutely transparent in the bidding process? If any of us is found guilty, you can blacklist us. The global organisation has appreciated this and is now following it around the world. We are also imparting ethical training for every single employee.

There is a cost benefit to standardisation but the customer preferences are converging and diverging at the same time. Where is glocalisation headed?

Ultimately, in the international market, customers will decide what they want tailor-made and what they want standardised. Big infrastructure projects are all standardised because products are expected to last 25-30 years. You need spares and service capabilities to service them over 25-30 years. On the other hand, you replace an X-ray machine every 3-5 years. If I want every product tailor-made, is there a business case? And, is the customer willing to pay for that? These are the market dynamics that will play a deciding role. 

Has sustainability blended with India strategy?
Recently, we rolled out a scholarship programme. The Siemens Scholarship Programme is for underprivileged people — with family income less than Rs 2 lakh a year. Also, for students who have scored first class in a school and have admission to an engineering college they can’t afford. We hold their hand provided they continue to maintain a first class record in their engineering college. We not only pay their fees but also for their upkeep. We provide mentoring programmes for them and training in soft skills. 

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(This story was published in BW | Businessworld Issue Dated 07-04-2014)