Business Today

Indian managers are fantastic but they have never managed overseas: Gautam Thapar

Gautam Thapar, Founder and Chairman of the $4 billion Avantha Group, which includes Ballarpur Industries and Crompton Greaves, talks about his group's prospects, the state of the economy, and much else in an exclusive interview.

Govindraj Ethiraj | Print Edition: May 26, 2013

Gautam Thapar, Founder and Chairman of the $4 billion Avantha Group, which includes Ballarpur Industries and Crompton Greaves, talks about his group's prospects, the state of the economy, and much else in an exclusive interview with Govindraj Ethiraj on the show Bottomline, which airs on Headlines Today. Edited excerpts:

Q: What does Avantha stands for?

A: Well Avantha, the word, is coined out of a combination of two words. The French word for 'advance', which is avancer, and 'tha' which is the Sanskrit word for being grounded with Sthapana and to be there. Of course, some people say, 'tha' is short for Thapar. You know I let them say whatever they want to but it really came from that to move forward but on solid firm footing and that's what it means.

Q: When you look at the environment around you today, how does the name and what it stands for relate to it?

A: I think the footing is solid in terms of the businesses. I think we have done a lot of work in the last seven-eight years in both the big businesses, which are Crompton (Greaves) and Ballarpur and I think some of that work has paid off, some of that work is now restructuring for the future. So, in the case of Ballarpur, at least today, I have a million tonnes of capacity with our raw materials secure, a market here (in India) secure. We have been growing in the last two quarters. The business has actually now started to show that growth, especially growth in margins and profitability and I think next year you will see more of that, as all the investments we have been making for almost five years will start coming to fruition. In the case of Crompton, it has been a retooling of the business to look at driving it as a global business as opposed to driving it as an Indian business and that is going to take time.

When we started the change in Ballarpur, it was 1998/99. It took us almost three years to revamp the way we ran the company, put the customer markets first, put the products behind and then start pushing in that direction, which then led to the SFI acquisition. Similarly, for Crompton, if you look at the acquisitions, they have been for technology, because ultimately we are - despite the size of the country - still not early adopters of technology in the area of electrical engineering. We don't have a regulatory framework, where the government and the industry work together to come up with the next set of specifications to drive technology development. That's a process that happens extensively in the West. If I want to do technology development in India but my customer is not a leading taker of that, does not want to implement it, why would I develop that technology? So you get into that syndrome. At the same time the market is changing, global players are coming in, they are bringing better technology, better resources. How do you then compete when you have global majors coming in with better technology, with things we may not have and pushing them?

There was a method behind what we did, we never did anything very large, we tried to fill in the missing pieces, we acquired certain customers abroad who have pushed us. When you are expected to come up with new developments, new technologies, new things, you take them up, you implement them and that's what we tried to bring back here, in terms of new product offerings, etc. Where we failed was in integrating the businesses together to look at the world as one, as regions and within those regions at customers - offering those customers a product that is seamless. So that's the process we have been going through for the last two years now.

Q: To what extent would you say is the growth and success of your group intertwined with economy of India?

A: In both cases they are, because at the end of the day the largest manufacturing base we have is here. So whether its paper, whether its Crompton Greaves, the base is here. Relative to what's happening everywhere else in the world, India is still at five-six-seven, whatever percentage you choose, in terms of GDP growth, it's still happening. What's lacking is the policy framework that keeps that growth going forward with some amount of predictability and allows us to make investments and harvest the returns and reinvest and grow the business. Our European businesses are still growing. They may be growing at one per cent or half per cent but they are still growing. But there are at a lower base. That's one part of it . The second part is, we are not that large that we have a lot to do to sell out our capacity.

There are inherent advantages of being in a large economy (like India's), in a growing economy, in terms of scale and cost. The question is, do we have a seamless product for every market? The answer right now is, not yet.

Q: Would it be fair to say that you are not as affected by the Indian economy as maybe other businesses are?

A: I have said that Crompton's challenges are internal. Everything I have talked about are internal challenges. How to integrate? If you look at Crompton's order book, it is full. Even today, if you come to me for power transformers, for different products, I do not have capacity in place to supply to you. The problem is that whatever I already have in my order books, I am not able to execute properly because of structural issues internally, because markets have shifted, customers have changed. I still have customers who have not cancelled orders, they have not asked for anything but, I am struggling because of a lack of cohesion around the integration of my two businesses to actually meet that requirement.

Q: Is the India story still looking okay?

A: I think we have fallen a long way. We are gearing ourselves up now, (but it will be) a very different paradigm going forward. Now if things like the Goods and Services Tax come, they will make a difference on the margins. But for anything else, unless you get the economy back at 6.5 to seven per cent growth at least, the need to spend on capacity expansion and investment is not there because through productivity improvements and things like that you can manage, to some extent, to keep your business going. But then you can't go through four years of zero investment in virtually every sector of the economy and not expect (a) that this will not be inflationary and (b) that if supply side constraints come from productive capacity, prices are not going to start moving up.

Q: You are saying that there was a time we could have been investing in capital and equipment and machinery, we didn't and the price for this is yet to be paid?

A: If you talk to anybody what he or she will say is that business is not bad, we are selling, we are recovering. Margins are not great, but that's a general thing.  But I am not making investments. My balance sheet is okay. I am sitting on cash. I am doing some retooling. I am doing some restructuring. But have you heard of one major investment in the last two years?

Q: Have we in some ways killed manufacturing because of our focus on services, or because of the general fact that we have taken our eyes off the economy?

I don't know whether you have killed manufacturing, but I think for an economy of this size to have manufacturing at 18-19 per cent or whatever, of the economy is a bit strange. In most of the countries today, it is higher: the US has it at 28 to 30 per cent. You are not killing it but you haven't really done anything to nurture it. The linkages, the infrastructure are just not there to take manufacturing from 18 per cent of GDP to 26 or 28 per cent, and if you look at some of the policies that are being looked at and that are being propagated, I don't see much in them which suggest they will take manufacturing from 18 to 28 per cent. Some of the biggest investors in the world say that investing is an act of faith. But the environment is not there. It's just not there and until that environment returns… Companies from those parts of the world which have a higher share of manufacturing, better technology and a more consistent policy framework, will continue to acquire in India and grow their businesses in India. So, the impact will be on Indian entrepreneurship in manufacturing. Will manufacturing get to 26-28 per cent? Yeah, maybe in 10 or 20 years, who knows... But what is going to be Indian entrepreneurial share of that manufacturing, I think that's a more interesting question to ask. If you listen to Indian entrepreneurs, I don't hear anybody wanting to plunge into any new manufacturing business.

Q: There is a feeling that the government has abandoned the manufacturing sector. It is antagonistic towards business and is really not doing anything to help…

A: I think the Indian manufacturing forgets that this was the case some 20 years ago as well, so it's not something that we are dealing with today. I think the nature and structure of this country, socially, politically and otherwise, is such that this is not American-style free enterprise. There are forces in this country which want to counterbalance any excess on any side of capitalism.

Q: Do you agree with that?

A: I am of the view that you first create wealth and then redistribute it. That's the best way to do it but to do that you need well functioning government bodies, you have to deliver what you set out to deliver as a government. Then you can do it. Otherwise, if you are not able to do that, you get the kind of situations where there is a lot of wealth being created but none of that wealth is being shared and you start wondering how sustainable it is. It is not sustainable and you need to do something about it. Some regulation is required.  As you open up industries and sectors, you need to have regulators and again it's a process of change. Some of the regulation which has come was required. But do you really need to regulate anything under the sun? I think that is not necessary, sometimes you may go overboard while doing that. There are areas where regulation is required and there are areas where it is not required. I think you need to draw a balance between them because the more you regulate, the more you make it difficult for entrepreneurial zeal and entrepreneurial  zest to exist. If people have to get 159 approvals to put up a power plant in this country, how many have the resource capability, the patience to do it? The answer is very few.

Q: There is a fundamental distrust and now you have industry and the government almost in opposing camps…

A: In my view, if have to sign on to globalization, we cannot say we are isolated from what's happening elsewhere in the world. If other countries, especially the countries we would like to emulate in terms of prosperity and growth, have structures where business and government have found ways and means to work together, I think it is incumbent on the political leadership of this country to find ways of working together as well.

Q: Do you feel today the government is killing entrepreneurs?

A: There is a reason why people do not want to invest in manufacturing at a time when government keeps telling us that we need manufacturing because it throws up jobs. If you are not going to make it easy for me regulation-wise to move into manufacturing then, I would prefer to invest in services. That's where everybody keeps going. Look at it: for services you have provided high speed, high wave infrastructure which I can use at the press of a button, I pay for it as per the norms and use it. I can rent an office, hire five computers, put in 10 people and get going. And if it doesn't work, I can go back to the landlord and return the keys, give the computers back and tell the 10 people thank you and goodbye, and I am out of there. Compare this with the kind of regulations manufacturing has to deal with. You come with a regulation that the industry needs to move from Point A to Point B in the next five years. When the industry is not making money, not making investments, is it realistic to expect this? If I don't agree with that five-year deadline, you start thrusting it down my throat. What are we going to achieve? There seems to be a misunderstanding about what is our capacity as an industry versus what the government would like us to do. I think that gap is widening since last few years. That is why it is so much easier to go into services.

Q: Or go out of the country?

A: No. Everybody says we want to go abroad because we want to de-risk our business. But I don't agree with that - it's not de-risking. You are dealing with a whole new geography, a whole new political set up, a whole new set up of regulations, a different set of customers. So, are you really de-risking your business? You are still better off investing at home provided you build a position in your business which makes you sustainable and competitive. If you are not competitive at home, are you going to get more competitive going abroad? If you can't compete at home, how do you expect to be competitive abroad? Foreign shores may look more attractive but believe me, you need to understand how to manage in those countries, how to manage the culture issues and how to integrate… I think Indian managers are fantastic but they have never managed outside of India. To expect an Indian manager to suddenly build a global multinational without ever having served global customers, is unrealistic. That experience has to come, and for that you need to create an environment where Indian business actually starts producing managers who are confident enough, capable enough to go out there. Those managers we have not produced yet. If Crompton Greaves has hired Laurent Demortier to run it, it is because he comes from a company which has gone global out of a small country in Europe and has done so successfully. We didn't find such a person within our existing setup because for 70 years we have been purely an Indian company with an Indian customer base, very nicely protected, low technology requirements and suddenly there is a paradigm shift. We had to go out but we didn't have that in our DNA because in manufacturing we have never set the rules of the game. It is Western Europe and the US which sets the rules.

Q: And China…

A: China has followed the rules and taken one step ahead. We are the next biggest economy in the region and, therefore, over the next 15 to 20 years, we should provide a pull to get these guys in here or set up shops here or get Indian entrepreneurs to set up shops here to conquer the same world which Chinese low-end manufacturing was doing 20 to 25 years ago.

Q: What's your outlook for next year or so?

A: Whether growth is five or six per cent doesn't matter to me. I am not expecting any sharp change. How sustainable it is from a social and some other point of view, I don't know. I mean, if for so many years we did not hear of labour issues and suddenly they are all over the place…why? You know people have aspirations, expectations have gone up... People have taken loans, they have been expecting their compensation to go up, but now suddenly you have inflation, slowing growth. Does the government of want a strong Indian entrepreneurial class running manufacturing business in this country or does it feel that is immaterial? If the ownership of the manufacturing business is immaterial, then you can carry on like this because if I am an MNC sitting on $30 billion as sales and generating $2 billion to $3 billion as cash flow in a year…I can put $50 million or $100 million in India. Not being a listed entity, I don't have to deal with the regulator… I just carry on doing my business and I have a 30-year view of India. Then one should not expect Indian entrepreneurs to come forward and do anything - if the message is we really don't care about who owns manufacturing assets in this country as long as people are investing in manufacturing, then you have people like me with large companies who will slow down their investments. But if we have enough faith in the position our category holds in the economy, we will ultimately have to invest. But it will not happen in the next 12 to 18 months… that I can say.

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