'India will double business by 2012'

Q&A: David N Farr, Chairman, CEO and President, Emerson

Emerson, a US-based diversified global manufacturing and technology company with a turnover of $21 billion (Rs 97,125 crore), is ranked 94th on the Fortune 500 list of America’s largest companies. It is among the few global corporations that used the economic meltdown as an opportunity for growth, with a string of about half-a-dozen acquisitions worth over $2.5 billion. In 2009, it acquired infrastructure management specialist Avocent Corporation (AVCT) for $1.2 billion, electric actuator firm EIM Controls, compressor manufacturer Vilter Manufacturing, LLC, new products and brands, besides Bangalore-based generator manufacturer Trident Powercraft.

David N Farr, chairman, chief executive officer (CEO) and president of Emerson, is only the third CEO of the company in more than 55 years. An employee of the company since 1981, he became its CEO in October 2000, chairman in September 2004 and president in November 2005. In 2008 and 2009, he was ranked among “the best CEOs in America” and the top CEO in the electrical equipment and multi-industry category by Institutional Investor Magazine. In an interview with PB Jayakumar, Farr explains how Emerson faced the slowdown, and its plans for growth in India and other geographies. Excerpts:

How did Emerson face the recent global meltdown and what was its impact on your businesses?
Everyone was surprised by this one as a business cycle typically lasts 10 years but this one had an untimely death at five. So, no one anticipated the downturn and everyone was shocked. Such sudden developments force you to think and slow down. We reacted by slowing down our businesses, and brought them down to $21 billion from $25 billion within a period of 12 months. But the emphasis was to generate “cash and cash” and we generated over a billion dollars during the period. We had 141,000 people globally in 255 locations in September 2008 and this number was reduced to 125,000. We had 240 manufacturing locations worldwide and we halted production at 20-25 facilities.

In a way, it offered us an opportunity to slow down, sit back and think. But it also gave us a good opportunity for acquisitions. We quickly reacted to the downturn and re-positioned our strategies, assets and businesses. To be frank, I liked that since it challenged the organisation to become stronger.

What kind of strategic shift in business happened during the period?
We realised it was time to move to emerging markets and add new technologies and assets. We did it and will continue to invest in Asia, Latin America, the Middle East and other emerging economies. If emerging markets currently offer us 32 per cent of revenues, they will contribute 40-45 per cent of revenues in five-six years, say by 2015, on a total turnover of $28-32 billion. Asia will be about $8-9 billion and China will be half of that. Latin America and the Middle East will give $2 billion each and countries like Brazil and Russia can contribute half a billion. We expect India to double business to $1 billion by 2012.

Is raising debt a problem, and over what time frame are you expecting the global economy to recover?
We never had issues in raising funds and our fundamental business strategy is to generate maximum cash internally. We had a capital expenditure of $525-$550 million last year, and we raised about $1 billion for the acquisitions. The global economy is still recovering, and for the next few years, it will have a slow growth of about 3.5 per cent annually from 4.5 per cent prior to the crisis. Exports also will be weak for a while. Emerging economies will have a higher growth rate of 7-8 per cent.

What are your plans for India?
Emerson has been in India for nearly 30 years now with around 4,200 employees and about $550 million in sales. We have invested over $300 million in India in the last three-four years and will continue to invest $20-25 million every year in the coming years. About 95 per cent of our products manufactured here are consumed locally and this is part of our global strategy of localising production in respective geographies. We are constructing a new manufacturing facility on a 13.5-acre land in Ambernath near Mumbai for UPS systems and DC power for the telecom industries and precision cooling for IT and telecom data centres. Our data network infrastructure business may slow down, but growth will be from sectors like telecom, oil and gas and pharmaceuticals. Climate technologies across various businesses also have big potential in India. As I said, telecom data infrastructure is going to be big in India in future.

Will you increase your manufacturing capacity in India?
As of now, we don’t need to increase the capacity since we have adequate capacity. At any point of time, we are open to acquiring new technologies or assets in any region around the world. Our buyout of generator manufacturer Trident Powercraft in Bangalore strengthened our numeric power business in India. We continue to evaluate such assets and will acquire new technologies or capacity as and when required at suitable valuations. It is a continuous process. As I said, we are also constructing a greenfield facility at Ambernath.

Where does India stand in your global research and development activities?
We invest 5-7 per cent of our turnover annually on research and development. We set up Emerson Design Engineering Centre (EDEC) last year in the Rajiv Gandhi Infotech Park in Hinjewadi, Pune, as a centre for our global engineering needs. EDEC develops product and software design and engineering services for Emerson’s divisions worldwide. This is now our largest such facility, employing over 500 people.

Which are the problem areas as far as doing business in India is concerned?
The main issue in doing business in India is finding suitable location and land. It is very difficult to acquire land here, and it requires lot of time to make a factory up and running. It also requires lots of clearances from various government agencies. As against this, you can build four-five factories in China within a year or two as procedures are not as complicated there, resulting in less procedural delays. State governments in India need to have more flexibility in allowing businesses to prosper.

Another major hurdle is lack of adequate infrastructure like roads and power. Despite all these, I think India has huge business potential. It also has positive factors such as a huge market like China and abundant supply of skilled manpower.