3M India is a 76 per cent subsidiary of 3M, the $23-billion diversified technology company. It has a presence in categories like infrastructure, automotive, oil & gas, healthcare, office stationery and home care. Ajay Nanavati, the managing director of 3M India, has had a long innings in the company. He talks about the 3M strategy for India with Bhupesh Bhandari.
India is about 1 per cent of 3M’s global business. In terms of profits, it accounts for even less. Is this because prices are low in India?
We are still in investment mode in India. We have made some significant investments in India over the last few years. That’s probably the reason why margins are softer here. We have put a lot of money to expand our distribution in the country, build the 3M brand, build the talent in the company, and create the core infrastructure to take this company to the next level. We have invested in a brand new research & development centre in Bangalore spread over 110,000 sq ft.
3M is really a technology company. Whenever we enter a country, we first put up a technical service centre. Then we move up the full chain and get into product development. The new centre will focus on what we call our “In India, For India” strategy. It will develop products specific to the Indian market. We are also building a technical support centre in Delhi. Our focus is to do blanket coverage of the country and reach out to customers beyond Bangalore. We are also building one at Pune to cater to customers in that region.
Where does India fit in for 3M?
Our chairman, William L McKnight, has specifically mentioned the corporate emphasis on India as one of the company’s largest opportunities. It is not just talk; it is a communication we are making to Wall Street in our annual reports and presentations to investors. That’s why we are making this investment in India. Even in the downturn last year, when everybody else was cutting back, we were still recruiting.
For the 15 months ended March 2010, you have done over Rs 1,000 crore, which means an annual run rate of around Rs 800 crore….
Yes. Actually, 2009 was a bit of a soft year. If you look at our last quarter (March to June 2010), sales were up 40 per cent, profits were up 60 per cent. We are seeing the tide turning. We are quite optimistic going into the future.
Many multinational corporations now look at India to develop products for other emerging markets. What about 3M?
There are some unique characteristics in the 3M business model. Unlike other multinational corporations which set up global centres, our centres are very country-specific. Thus, we have a China centre, a Japan centre, a Germany centre and now an India centre. But there is seamless sharing of technology across all these centres. For example, if China develops something, it becomes available to India. This is the core strength of 3M which is a diversified technology company. We are into so many businesses, and have so many products and so many technologies. We do not create mother units which everybody feeds off. These are amoebas or satellite units which support each other.
But this runs the risk of duplication of effort.
That’s where the seamless interaction helps, which leverages the work that has already been done somewhere. This is very unique to 3M. I don’t think there is any other company that has been able to make this work. There may be some marginal duplication, but that is very rare because there is open and transparent communication. My technical director in Bangalore knows exactly the programmes Japan and China are working on.
What are the main pillars of your strategy?
First is localisation. We have spent Rs 150 crore in the last one year, and will spend Rs 100 crore over the next year, to create new capacity to support the local market. Second is geographic expansion. We are setting up roots across the country. We are expanding distribution to get into Tier II and III cities. Historically, 3M has played at the top of the value pyramid. But we recognise that in a market like India you need to have a portfolio that services various segments. We are thus expanding our product portfolio so that we can meet multiple price points. The third leg is talent development. This is of personal interest to me. I am deeply involved in building the pipeline of leadership in the company. 3M has been ranked by the CEO magazine as the best company to produce leaders in the world. Most of my leadership team has been in the company for 14 or 15 years. But as we ramp up, we need to build the bench strength of leaders in the company. In fact, India has been tapped by 3M globally. We have 15 or 20 Indians working for 3M in the Asia-Pacific region.
The last leg is building the brand. 3M has been a low-profile company. Most people know us by our consumer products like Post-it, Scotch Tape and Scotch Brite, though we are largely a B2B company. We are an industrial technology company; B2C is a small part of our business.
We have leveraged the 3M basket as we go into individual accounts. For instance, we service the automotive industry. In addition to providing them the material that goes into their cars, we also provide them material that goes into their offices and worker safety areas. They should see 3M as an integrated unit rather than discrete verticals.
How much of your business is B2B?
About 85 per cent; the rest is B2C. That’s pretty much the global average too. But we see a huge opportunity in the consumer segment in India. So the B2C component could go up as consumer sentiment picks up, modern retail picks up and global brands start to come to India. We already have relationships with Walmart, Carrefour, Tesco and others. As they come here, we have the opportunity to leverage those global relationships. But the heart will stay B2B, though the consumer side will grow faster.
How large is your distribution network for B2C products?
The last few years were spent on developing this network. Now that bit is in place, we can push more products in the pipeline. We now have the critical mass in terms of products, so we can go deeper into geographies.
What’s your market share in B2C products?
We often create markets. The concept of a branded product in these categories didn’t exist till we came in. Again this is a unique characteristic of 3M. In the branded segment, we have a very dominant share. If you look at branded as well as non-branded, we probably have 20 to 30 per cent.
So, your B2C business would be about Rs 10-12 crore a month. Within that how much is office supplies and how much is home care?
I would say that 75 to 80 per cent is home care and the rest office stationery. Again, as last year saw a slowdown in the office space, we expect it to pick up this year. Besides, we are adding new products to the office stationery line. Within that segment, we are also looking at education. That will be another big area. We have introduced glue sticks recently, for example. In India, the segments we see growing for us are automotive, healthcare, infrastructure, and oil & gas.
Does the 80/20 law apply to 3M — 20 per cent of the products fetching 80 per cent of the business?
Within a vertical, that would be true; but not across the company. We don’t have an overwhelming dependence on one particular business. All the segments are reasonably balanced. Within each vertical, the 80/20 principle would apply. In oil & gas, for instance, we may have two or three products and four or five customers who account for 80 per cent of the business. Similarly, in automotive, about 15 products and 10 customers constitute about 80 per cent of business.
Your development centre is ready now. Till now, did you import all the products or was there some extent of localisation?
We have been accelerating the process within the constraints of our limited capacity. We have been doing it more on a pilot scale. Even today, we have filed nine global patents from India in multiple areas. For instance, we have developed an abrasive device that can run without power. The highway marker used here is a patented product developed here. Earlier on, it was minor tweaking. Now it is moving beyond adaptation and modification to development.
Have you got your prices right?
Our thrust is on value. We have a strong emphasis on price and value. Take a car like the Nano, for instance. This is the cheapest car in the world and somebody can assume that there would be no place in it for a premium company like 3M. But we have been able to demonstrate to Tata Motors that the right thing to do is to look at the life cycle cost versus first cost. The only way we can survive is if we can demonstrate that we bring compelling value. Most car companies want to do three things: Reduce the weight of the car, improve fuel efficiency, and lessen the vibration and noise in the car. So, we have identified three or four segments to focus on: Noise & vibration control, aesthetics, for example. A lot of companies now use adhesives and tapes instead of welds because that makes the car heavier.
Are you looking at 100 per cent localisation of products in India?
I don’t think we are looking at 100 per cent. For a company like us, which has such a diversified portfolio, it would be inefficient. Theoretically, it is possible but it is certainly not efficient. Right now we are at 50:50. We will probably get to 70 per cent localisation. The preferred route for us is to buy as much as possible from local markets; but these products have to be available in the right quality at the right price.
How have you gone about building your brands?
We have five or seven power brands. 3M is undergoing a global consolidation of brands. So we are also in that process. We will focus on the power brands like Scotch Brite, Filltreet, Scotch Tape, Post-it and Espe. The other brands will over time migrate to either these power brands or the 3M brand. Even on our packaging, the sub-brand will become smaller and the power brand bolder. The transition will happen over time.
What are the tangible benefits you are looking at from the new development centre?
The first is to make products that meet Indian performance requirements which can at times be very stringent. Roads, for instance, are made of tar and often melt in the heat and trucks drive over the markers. So, India has some unique requirements of this environment. The second would be to meet multiple price points.
So, it will also look into your costs and processes….
Absolutely. Some customers don’t want a Rolls-Royce; they are quite happy with the performance characteristics that meet their need. So, instead of trying to give them a platinum-coated product, we give them a silver-coated product. We recently did an ethnographic study of home care products. Our technical and sales & marketing people visited homes across the country to observe how housewives clean their homes. This learning was taken back: Let’s customise our product so that it fits into their habits. We need a product that can take care of heavy-duty cooking habits. Similarly, our people got to the shop floor of car makers to see how work is done.
Are you happy with your prices in India?
That’s a continuous effort. At the end of the day, a key competitive advantage is always going to be low-cost production. I don’t price my products on what it costs. It is for a given price what value am I giving? That’s why our margins vary.
Where do you see 3M in India?
We have set a goal for the company, which we call the 5X5 plan. We will be a billion-dollar company by 2015. That’s the target I have set for myself and my team, that’s the commitment I have made to the corporation. We will be five times of what we are today.
And in terms of profits?
3M has a global expectation. We expect to track the corporation worldwide so that we are not a drag. Right now, we are behind.