India is emerging as a source of best practices in management and strategy
When Renault India’s head of marketing, Gerald Porcario, completed his three-year stint in India a couple of weeks ago, he did not get the usual posting back to Paris or some Euro-zone market. Instead, he’s headed for another non-European developing country on the specific understanding that he leverages the learnings from the “super-complexities” of the Indian market in his new bailiwick.
Over 2004 and 2005, Pune-based Bharat Forge, one of the India’s largest producers and exporters of automobile components, acquired companies in such bastions of sophisticated engineering as Germany, Sweden, and the United States. It might have been expected that the Indian unit would draw on manufacturing knowhow from the overseas companies it acquired and not vice versa. In Bharat Forge’s case, however, it was a maintenance management practice developed in India that was implemented in its overseas units.
Till recently, the flow of management and strategy knowhow was one-way; it was India that absorbed business models, technology and management systems from foreign corporations and institutions. As India Inc raced to globalise and global companies sought to exploit the country’s low-cost talent pool, such industrialised-economy concepts as Kaizen, The Toyota Way, Six Sigma and so on gained currency.
Today, India is no longer just a destination for manufacturing, services and research in which corporations lever lower cost into a competitive advantage — it is also gaining traction as a source of best practices in management and strategy.
Ironically, this strength flows from the complexities of doing business in India, both in terms of the regulatory environment and scarce resources. “The market in India is very fast-moving and not particularly stable; so you need a fast and flexible approach to management, and Indians are used to dealing with ambiguities,” says Arindam Bhattacharya, managing director, The Boston Consulting Group (BCG), and co-author of the book Globality: Competing with Everyone from Everywhere for Everything.
Dealing with ambiguity
A case in point is the problems with the Logan, developed and produced by a 51:49 per cent joint venture between Mahindra & Mahindra (M&M) and Renault. When it was launched in 2007, the Logan was positioned as a low-cost mid-sized car that was expected to sell about 2,500 units a month. By October 2009, it was selling less than 500 a month. As executives in Renault, which exited the joint venture earlier this year, admitted, the principal problem was pricing.
One, the Logan’s price was scarcely lower than competing products like the Tata Indigo, Maruti Swift Dzire or Ford Ikon because of the relatively high import content. Two, the Logan suffered when the government introduced a dual excise duty structure soon after the car was launched. Cars up to 4 metres long attracted a 12 per cent duty; those that were longer attracted 24 per cent (the rates have since changed to 10 and 22 per cent).
The obvious solution was to reduce the wheel base to below 4 metres to take advantage of the lower duty, but as Sylvain Bilaine, then country head and managing director of Renault India, admits, the French car-maker “was not capable of fast decision-making”. In contrast, Tata Motors was able to display the kind of rapid and adaptable approach that most Indian corporations take for granted and reduced the length of the Indigo to benefit from the duty differential.
Bilaine, who spent about a quarter-century in the automobile business, has been struck by Indian management’s flexible response to dynamic market conditions. So much so that he is parlaying the lessons he learnt in his five years of association with India via SyB Consulting, which provides consultancy to companies interested in investing in India. “M&M taught us to be very quick in our responses,” he says.
He points out that western companies typically follow strict manufacturing practices in order to achieve Six Sigma standards. Therefore, the production and launch schedules tend to be followed with as much exactitude as possible. Indian companies, on the other hand, tend to be less rigid in their approach, which enables them to react to developments more quickly.
M&M, for instance, rescheduled the launch of the Xylo utility vehicle to accommodate the installation of a dual air-conditioner once it discovered that this would have been a critical element of customer demand.
Likewise, Bilaine says, the speed with which automobile companies were able to respond to the credit crunch after the Lehman Brothers bankruptcy is another key takeaway for global conglomerates. “The credit market in Mumbai completely dried up between October 2008 and March 2009 and spreads were out of whack,” he recalls, “But companies like M&M and Bajaj Auto moved really fast to reduce stocks and align working capital management — so much so that M&M actually had the cash to buy Satyam some months later!”
The jugaad advantage
The most noticeable impact of such flexibility, however, lies in frugal engineering, an approach that is making India globally unique because it yields advantages for businesses that transcend just labour costs. Bilaine refers to it as “Indovation” but prefers the common Hindi term jugaad which he says is a striking feature of the Indian business landscape.
Indian businesses have a way of making things differently, he says, maybe because as a poor country India has had to cope with minimal resources. For instance, mudguards made in India can be 75 per cent cheaper than anywhere else in the world simply by using recycled rubber. It is the same approach that encouraged Indian car manufacturers like Tata Motors and M&M to source second-hand assembly lines from the West and re-configure them in India for their car projects, a move that lowered costs by as much as 30 per cent.
Indeed, multinationals are increasingly looking at India as a means of drawing lessons on resource maximisation. For instance, Renault-Nissan’s first green-field plant in Chennai spread over 760 acres and with an eventual annual capacity of 400,000 cars was completed in 21 months against an average time of 36 months for plants of comparable capacity.
The experience has encouraged the alliance to examine the kind of “safe shortcuts” that can deliver a huge leap forward in terms of time and cost for future projects, says Ashish Sinha, Renault India’s spokesman. “It’s a question of solving the cost issue but keeping quality constant,” he adds.
Renault-Nissan, a relative latecomer to India, is trying to derive business learnings with its multiple alliances: With Bajaj Auto, to develop a low-cost car, and Ashok Leyland for light commercial vehicles. This “cross pollination” of ideas is being extended to the alliance’s design studio in Mumbai where talent is being hired locally.
The broad idea is to train them in the Renault philosophy and then give them a free hand to develop India-driven content. Together with Renault’s Rumanian unit, the India design studio has been mandated to develop a concept car that will be unveiled at a major car show next year. The specific brief is for interior colour and styling. One idea that has already attracted attention, for instance, is using woven fabrics as car upholstery.
Integrating best practice
Developed over 15 to 18 years in Bharat Forge’s Indian factories, it is an extremely mechanised process that focuses on minimising downtime, or the time scheduled for machine maintenance. Obviously, lower downtime means higher plant profitability. Equally, scheduled downtime is preferable to unscheduled downtime caused by machine failure. The system that Bharat Forge developed in India and that was implemented by its best practices group in plants it acquired overseas entailed creating a robust information system that anticipates problems before they occur. “We feed into the computer, everyday and every hour, every piece of data that tells you what you have to do during the manufacturing process, instead of making you deal with the problem during the downtime,” says Baba N Kalyani, chairman and managing director, Bharat Forge.
As a result, Bharat Forge plants worldwide have an average down time of less than 10 per cent, the norm for efficient plants worldwide.
The critical point about the Bharat Forge experience, again, is the flexibility. Asked about implementing indigenously developed technology in overseas units it has acquired, Kalyani said, “There’s nothing hard and fast about our approach.” He said the company has established a “best practices group” that comprises two or three people from each of its plants worldwide to focus on improving all-round performance and implementing the maintenance management system was part of that exercise.
Like Bharat Forge, other Indian companies acquiring corporations overseas have opted for distinctive organisational structures that enable them to maximise global competitiveness. BCG’s Bhattacharya describes it as “soft integration”.
For example, Tata Chemicals acquired UK-based Brunner Mond Group and its Kenyan subsidiary, Magadi Soda Company, in 2006 and US-based soda ash producer General Chemical and Industrial Products (GCIP) in 2008 to expand its chemicals business which accounts for roughly half its sales. Instead of opting for the “hard integration” process that typically follows mergers and acquisitions, Tata Chemicals allowed each entity to retain its local identity but created a structure to leverage global strengths.
To coordinate operations across its four geographies, it put in place a global advisory council that comprises the heads of the Indian business, Brunner Mond, GCIP and Magadi plus the vice-president, marketing and strategy, based in India.
Meanwhile, reporting structures have also been kept flexible. For instance, the human resource chief of each organisation reports to an overall head in India but also to the chief of each geography. As with Bharat Forge, this flexibility enables the group to cherry-pick the best practices from within the global organisation, explains R Mukundan, managing director, Tata Chemicals.
The benefits have accrued in terms of talent retention and operational excellence, he adds. For instance, the acquisitions did not result in the usual top-level exodus that follows most M&As. “On the contrary, we ended up retaining people,” says Mukundan.
Importantly, the soft integration allowed the company to move talent around to exploit its acquired global skill base. For instance, the operational head of the Kenya plant had moved from a unit in Wyoming, US, and the CFO of the US operations had previously headed the same function in the UK business. Regional managers are now also responsible for key group customer accounts, an example of how Tata Chemicals has been able to leverage its global network to deepen relationships with customers.
To be sure, many of the best practices that have evolved from the exigencies of doing business are scarcely big-ticket in nature — India Inc is yet to deliver a concept equivalent to, say, a Six Sigma or Toyota’s seminal logistics system. But as globalisation raises the stakes in staying competitive, the country may just emerge as the source of useful next practice.