It was timed to coincide with the Auto Expo but it had none of the hype. Just a gathering of auto industry eggheads from distant shores sharing their experiences. They were not looking for media coverage so the press was not invited but I had met somebody from Citibank who was central to this initiative so I was there, keen to learn about the one industry that all men care about.
The list of speakers was impressive enough. After David H. Smith, global industry head of automotives with Citibank and his deputy, Andre Shortell, was a whos who of Indias auto industry: John Parker, president, Mahindra Ford India, S.G. Awasthy, managing director, Daewoo Motors India, Ravi Uppal, managing director, Volvo India and Brijmohan Lall, chairman, Hero Honda Motors.
The evening was not wasted. There were many factual insights gained but perhaps the most striking was the difference in the approach towards the auto industry, particularly with India in mind, of the Occidental and the Oriental mind. Smith, Shortell, Parkerall Americanshad prepared speeches, facts marshalled in a neat linear framework, expostulated with the help of slides full of quantitative and qualitative data. Decision-making, for those working in this paradigm, almost becomes a mathematical deduction, once the risks have been dissected to a minimum and the opportunities quantified.
On the other hand was Awasthi. No prepared speech; some kind of a framework for his presentation but no quantitative data. Speaking straight from the heart, Awasthi spoke of how doing business in India is a matter of dealing almost entirely with intangibles like perceptions, uncertainties, political equations, unreliability of data. Decision making then moves away from the realm of soulless statistics to gut feel, instinct and risk taking at a level which the typical Occidental determinist mind would have problems with.
First the facts on the auto industry, as seen from the perspective of the New York-based Smith and the London-based Shortell. Globally, Citibank believes that there is excess capacity, putting pressure on margins and pushing down costs; excellence in products is a given so the brand image is increasingly the differentiator; the shift to trucks (in the US now almost every other motor vehicle sold is a pick-up or a sports utility vehicle) is not just a fad, so more competitors are jumping in; consumer financing is the biggest driver of demand and the monthly repayment sum is the key (in India certainly).
To this, Shortell added: Volatility of demand in the high-growth markets (like India) is here to stay but one way to mitigate the downside of volatility is to globalise. And he gave the example of a Thai client, a mid-size firm which was sailing along at 25 baht to the dollar but had its net worth wiped out now that the baht hovers around 53. Had the firm been exporting half its produce, it would have prospered. Moral: if you are not paying any attention to the financial side of your business, you could get wiped out.
Shortell had more. Along with telecom, auto components are the most globalised industry. There are some four or five brake manufacturers outfitting the approximately 50 million cars produced worldwide every year. Fiat has taken the mantra of globalisation to new realms; it is building its Palio world car in 13 places, drawing their original equipment manufacturers (OEM) to all those destinations where, naturally, they look for joint ventures. A study by Citibank and Oxford University on globalisation in the auto industry showed that OEMs have increased their globalisation quotient by 59 per cent in the last decade. Effect on bottomline ? The top eight most globalised companies outperform the S&P world index by a wide margin.
And what about India ? The same study notes: the best regions in the late 80s were EU and NAFTA; the best regions now are Asean (the study predates the meltdown), Mercosur, East Europe and India. Isnt the absence of China surprising ? No, said Smith. China has no real car-buying customer, like India has. The car in China is an organisational asset. In fact, India has many more new entrants in this industry than any other emerging market. So, competitors who have never shared a marketplace will be facing off against each other in India.
And one of them will be Awasthi, who was here as the midwife of Daewoos foray into India. In a masterly presentation he showed how you can do business in India only if you question all assumptions, be flexible and take courage in both your hands and jump. For five years before Daewoo made its commitment to invest more than a billion dollars, the Indian auto market had been growing at a consistent 15 to 20%; come the year of commitment and the market stagnates. FIs balk at financing for auto firms in India once they hear the figures and ECBs are difficult because the Central bank has too little experience of this industry to give a guarantee. Our labour is cheap, it is said. Not really, says Awasthi. Yes, we have skilled manpower and engineering talent but where is the mindset that values quality and reliability ?
Why, even in marketing, Daewoo is facing criticism, laments Awasthi, for creating a situation where a car can be bought off the shelf, as if that is an unnatural state to be in. With a typical Oriental flourish, Awasthi concluded thus: to succeed in India you need confidence in the future because the present is uneven and the past is absent.