Value has become an important parameter when determining the price of goods or services. Price is not just a function of cost and profit anymore
Timeline: April 25, 2020
Where Were We: Confirmed cases neared 25,000, at a much faster rate than before. While it took 76 days for cases to reach 10,000 by mid-April, it took only eight days to reach twice that number. A general realization had dawned on decision makers in the government and industry that this was going to be a long-drawn battle. Initial optimism and actions around reopening the economy had been replaced by a sense of bracing up for the unknown. It was during such times that we got to speak with the two industry captains from two different parts of the country — Ravi Raghavan, MD, Bharat Fritz Werner (BFW) joined us from Bengaluru and Nishant Jairath, Director Metalman Auto Pvt Ltd joined us from NCR. Edited, abridged excerpts (following the Key Takeaways section).
NISHANT JAIRATH
– With any kind of crisis comes a new opportunity, an opportunity for you to perform better.
– The foremost thing that we need to do as leaders is to increase resilience within our organizations.
– The role of industry bodies becomes much more crucial during such times. The big associations should come in together for one common objective. This is required and is the need of the hour.
– Indians are born entrepreneurs. It’s just that one needs to know and develop ways to channelize all that energy into action and results.
– In India if we need to cross-leverage the strengths of the service industry and the manufacturing industry. It can be a win-win situation for India. Despite having such a robust IT industry, we are not able to capitalize on this by creating a bridge between the two aspects, whereas the US has been doing it very well.
– We need to re-evolve our education sector. We need to teach manufacturing entrepreneurship and establish incubation centers like how we have in the IT sector. Our industry has the right kind of DNA to be there among the leading players.
– Whether it is domestic or global trends you have no control over them; the only control you have is over your company and yourself, so work on that.
RAVI RAGHAVAN
– A positive thing that has emerged is that this has given me an opportunity to find many hidden leaders within my group. These are the people who bring out their best during the times of crisis.
– We learned about it in management schools and we practiced it to an extent, but when a crisis like this hits, a realization dawns on you that society plays such a big role in everything that we do. And that realization makes the whole purpose of your organization much stronger.
– Value has become an important parameter when determining the price of goods or services. Price is not just a function of cost and profit anymore.
– Supply chain resilience will become even more important, not only in terms of the cost and capacity, but also in terms of reliability including how dependable it is from a geo-political perspective.
– India’s value addition to the global supply chain should be much higher. Instead of exporting raw material, and importing more complex components and finished goods, we need to be able to make more high value-added products locally.
– Some of the value may be getting lost in doing quick fixes. To digress a bit, we saw this trend in our IT industry, where companies begin by offering a low value-add service, scale up fast, based on which the evaluations go up and everyone is happy.
THE TALK
How is it looking on the ground? Have the factories started in your region?
Nishant Jairath (NJ): Certain operations have opened up in some regions of India. In particular, we have just commenced production in Pantnagar but we are operating with one-fourth manpower. In Aurangabad we’ve received permissions to open, but as you know our production is linked to demand from global automotive OEMs; until they start pulling in material, it doesn’t really make sense to commence the production at full capacity.
Ravi Raghavan (RR): We got some permissions to maintain the plant. As you know, plant maintenance is very important for a manufacturing company. And that’s actually my advice to all the other manufacturers as well. We need to keep running the machines for two hours or thereabouts every day so that the machines stay in good condition. Otherwise it’s going to be a cost when we restart; and you find that many of the components may not be in working condition.
Can you give us an idea of what was the situation immediately after the crisis hit us? To share with you our experience, we started to get concerned when DMI’s Dinesh Mishra visited Auto Expo in February, and was surprised to see the thin attendance, and not just in the China pavilion, where a lot of exhibitors were disallowed to participate due to the emerging situation.
RR: We started to get some idea of it in February. Industries [in general] were going through a tough situation, we were expecting that the last part [of the financial year] would be good as we had good orders too. Sometime in February, a lot of imported material from Japan and Taiwan got into problems – shipments getting delayed and other such difficulties. That’s where we started to get a feeling that things were more serious than what appeared. Unfortunately that became a reality a few weeks back.
NJ: As you pointed out, the initial signals came in during Auto Expo itself where we were also participating. That is one of the exhibitions we look forward to. The attendance this time was very low compared to the previous years, which gave us a few signals of something that was not right. However, the magnitude of it was not expected to be this big. Lots of people thought we [in India] may have a better immunity to it, or that the type of weather we have could provide some defence. But I never thought that it would hit everyone for such a long period of time; it will disrupt manufacturing in such a big way. The magnitude was something that was completely unexpected.
Can you share with us how has been the employee morale; how have they been keeping up?
RR: This is a far more complex situation than the earlier crises that we have seen during 2008-2009, etc. They were financial crises and the solutions were financial or economic. But this is a health crisis; it impacts both life and livelihood. To be honest, it took a couple of weeks of estimation. But people have understood now that this one is going to be a long battle.
Yes, there is a feeling of uncertainty and anxiety among people, and I am talking not only of my company or industry, but everyone across the board. People are finding it difficult to readjust to the unfolding reality. The most important task for me has been to keep everyone motivated, whether it’s our employees or people in the society or family; that’s a sort of a single-point agenda I have in mind because I believe everything will fall into place once that is in position.
Then it is about looking at aspects of safety for everyone. Then doing what the government wants us to do. I think the only solution for all that is communication, communication, communication. Communication was never so important as it is today – we always knew that it was an important element of life, management, everything but never did I feel that it was such a critical thing as I do now.
Can you share some ideas about how you are keeping up the employee morale?
RR: We have about 1,200 direct employees, and we’ve been able to reach out to each one of them a number of times during these last six weeks. We’re trying to focus on positive things, focusing on the light that lies beyond the shadow. A positive thing that has emerged is that this has given me an opportunity to find many hidden leaders within my group. These are the people who bring out their best during the times of crisis.
NJ: As Ravi said, communication is playing a very important role, particularly in terms of nurturing an atmosphere of positivity. We are trying to convey [to our people] that with any kind of crisis comes a new opportunity, an opportunity for you to perform better. Ravi also shared a very good example of how you are able to find new talent, who see this not only as a crisis, but also as an opportunity to showcase their strengths and capabilities to the top management. It is true with us as well.
To add, this is the time when we feel that we’ve reset ourselves and our work. These times have given us an opportunity to revisit the drawing board, list all the processes that we’ve been doing as an organization, go back to strategy, and work on the SWOT aspects, not only in terms of strategy, but also, more importantly, from a people’s perspective.
For example, we realize that training is important, so we’ve done things like providing online educational courses to our employees. As importantly, we have made their family also a part of this conversation. We have tried to create a social circle where the employees’ kids can also interact with each other because you know they’re not be able to go out to play with their friends – so I feel that that is something important that we’re doing.
RR: The point about family is very relevant. It brings to mind to things that I also discovered during these times. One discovery was that I thought I was a very compassionate person, but these times made me realize that a lot of ground still needs to be covered. The second thing is that I never realized how remarkably important social ties are to everything we do. We learned about it in management schools and we practiced it to an extent, but when a crisis like this hits, a realization dawns on you that society plays such a big role in everything that we do. And that realization makes the whole purpose of your organization much stronger.
To add another point, we have shared a lot of books with people, encouraging them to read constructive things.
As organizational leaders, what course of action do you recommend to your peers as well as the authorities so that plants can be opened up in a safer and better socio-economic environment?
NJ:– I think the foremost thing that we need to do as leaders is to increase resilience within our organizations. We have to become more agile and cost-effective. One should look at ways to adopt digitalization within one’s organization — chiefly to connect with customers faster and at a reasonable cost.
In addition, as an industry, we need to strongly work on having a framework to adopt risk management — if such a crisis [Covid-19] can happen once, it can happen again. There is a need to bring in new ideas into operations, look at innovation, lean management, these aspects we have to start taking a more focused look at, as an industry.
For example, we’ve been doing value-stream-mapping of our products, and trying to figure out non-value-add areas not only from the process perspective, but also from the information perspective.
From a macro perspective, the role of industry bodies becomes much more crucial during such times. It is my own assumption that there is no unified strength to be able to face such critical times. I think most of the bigger associations should come in together for one common objective. This is required and is the need of the hour. Collaboration and digitalization have never been that important.
RR: Let me put the approaching time and strategy into three phases. One is immediate. The next three months for companies and the industry are about survival. It is about keeping one’s head above water. The whole learning for me as far as this exercise is concerned is: let’s make things very simple. That makes life easier and better.
The second phase is midterm. There is some pent-up demand in all markets and industries which will suddenly come up once the initial phase is over. Organizations should be ready to fulfil that demand because that may be short lived. We don’t want to miss that opportunity, so we are keeping focus on that as well.
Third is the long term. I don’t want to use jargons like W- or V-shaped growth. There can be three scenarios in the long term: One, in terms of dealing with the pandemic, India has done okay, the world has done okay. Two, India has done okay, the world has not done okay. And the third, neither India nor the world have done okay. So all strategies will depend on which of these scenarios will pan out.
Speaking of things to address in the long term, I’m looking at five things. One is content localization in the manufacturing industry. You can also call it domestic mobilization or an inward focus.
The second one is the digital piece. Not that everything will become digital and that you will not have any [physical] touchpoints. What one needs to have is a beautiful combination of both. Modern technology can make doing it so much more efficient.
The third piece is alternate cost models. Now, value has become an important parameter when determining the price of goods or services. It is not just a function of cost and profit anymore. When we buy a high-end mobile, we don’t strip it down and calculate the price of the IC chip or the camera and so on. We don’t see why you pay Virat Kohli so much when he bats for only 60 overs. The parameter of value will change the whole alternate-cost-model equation.
Fourth is supply chain resilience that will become important, not only in terms of the cost and capacity, but also in terms of reliability including how dependable it is from a geo-political perspective.
And of course, agility, as Nishant said, is among the most important factors that will determine success and survival of industries and enterprises.
Do you feel the manufacturing industry was hit harder by Covid-19 because of the underlying vulnerabilities that it already has. If so, what are these vulnerabilities?
NJ: In India, as you know, most of our manufacturing happens in the unorganized sector. If more of it gets an organized structure, our resilience would increase. To give you an example, I belong to Ludhiana. I can tell you that this city is full of excellent examples of frugal engineering and innovation. The only thing lacking is a lack of channels to take these innovations, strengths and capabilities in a systematic way to customers.
Indians are born entrepreneurs. It’s just that one needs to know and develop ways to channelize all that energy into action and results.
The other factor is the industry’s dependency on low or unskilled labor. On this issue we have not been very focused, in terms implementing newer technologies. We as an industry are still working with old manufacturing methodologies.
RR: Small businesses are a great strength of this country and they have great ideas but at the same time they face certain limitations because of the [economic-regulatory] environment. Our structure is federal so there is a combination of center and state laws. But unfortunately discordance in the many types and numbers of compliances can pose hurdles. For example, an entrepreneur today who comes with technical acumen needs to focus only on the technology aspect. Instead his or her mind is occupied with what compliances he or she may not be fulfilling unintentionally or, say, the number of forms that need to be filled to apply for a bank loan. These things take her mind and energy away from focusing on her enterprise’s core strength. Such things don’t happen in an advanced economy like Germany.
On the subject of ease of business, we have moved fairly fast, but we still have a long way to go. If you do that right, I don’t think anything that can stop our industry from becoming a leading force. I believe that this is very critical, and everybody needs to join hands on this with the government because it’s so much important for the next generation to lead a great life, and to do so, an important step would be to expand manufacturing from the current 16 percent to 35 percent of GDP.
The share of manufacturing in India’s GDP is about 16 percent, which is similar to other industrialized economies like Japan (19 percent) and greater than that of the US (11 percent). However, when it comes to India’s contribution to global manufacturing output (MVA), at 3 percent it is a fraction of what industrialized nations contribute. How can India increase its contribution to the global value chain?
RR: There are two sides to that. One, even at 16-18 percent, we are good at manufacturing low value-added things for the most part. When you take nineteen percent of Japan’s GDP share of manufacturing, those are mostly high value-add goods [including electronics and machine tools]. If Japan had more natural resources like minerals, their manufacturing size would have been much higher as a percentage of their GDP.
India’s value addition to the global supply chain should be much higher. Instead of exporting raw material, and importing more complex components and finished goods, we need to be able to make more high value-added products locally.
We do have the strength of our people. I don’t think any other country has this great combination of demography and technical strength. If you take the number of people who are technically skilled in our countries, it is among the highest in the world. So it’s just a question of putting all of that strength into collective value building.
Some of the value may be getting lost in doing quick fixes. To digress a bit, we saw this trend in our IT industry, where companies begin by offering a low value-add service, scale up fast, based on which the evaluations go up and everyone is happy. We must ask ourselves if we made a great product or we just want to be some app creator and not add any value to that. That mistake should not happen in manufacturing, otherwise we’ll remain a semi trading-manufacturing economy. If at all we have to compete with industrialized nations, de-commoditized products and add value to them.
To take a leaf from the machine tool industry. No country can be called a manufacturing country, if it doesn’t have a strong machine tool sector. So the first thing you start is with machining. In machine tools, China does about $30 billion and India does about $3 billion. I think everybody in this industry would be smiling ear-to-ear if we can do three or four times our current output. There is a huge opportunity. We just have to put our collective intellect and hands to it.
NJ: To add, in India if we need to cross-leverage the strengths of the service industry and the manufacturing industry. It can be a win-win situation for India. Despite having such a robust IT industry, we are not able to capitalize on this by creating a bridge between the two aspects, whereas you know the US has been doing it very well. They are good at creating that bridge — where through services they are able to market products and serve the customers, even when they outsource their manufacturing to some other country [but retain the IP and marketing rights].
Additionally, the crux of it lies in education. We need to re-evolve our education sector. We need to teach manufacturing entrepreneurship and establish incubation centers like how we have in the IT sector. Our industry has the right kind of DNA to be there among the leading players.
RR: To add to what Nishant said, the great opportunity for the manufacturing industry is to combine IT and OT (Operations Technology). Se we make smart machines together with the IT industry. I don’t think any other country in the world has that much of IT-OT strength as we do. Japanese have a great ecosystem in the automobile industry, which influences the machine tool industry and so on. BFW has been able to compete very well in an industry which has traditionally been dominated by European machine tool builders. Time is of essence for our manufacturing industry.
Audience question: How can India benefit from a perceptible shift of manufacturing base from China to other locations?
NJ: One thing we [or any other manufacturing economy] need to accept is that it is near impossible to be able to beat China when it comes to cost. Also, when we talk about this shift, people start assuming that all those factories are going to come to India. There are Southeast Asian countries like Vietnam and Taiwan where these businesses could shift and are doing so.
I think rather than waiting for this opportunity and counting on it, we should work on our businesses in terms of our strengths and weaknesses. From an entrepreneurs’ perspective, we should align ourselves in line with the requirements that these countries have. At Metalman Auto, we’ve created a SWOT analysis with respect to any and all opportunities.
RR: I think there is a little bit of emotion in such a narrative, so I won’t take it completely as an economic trend. If you see even in the last two years, some companies moved out of China [owing to the US-China trade war] but they went to other countries and very few came to India. It’s very simple: water will flow where it finds a path of least resistance, and there’s still some resistance in our ecosystem. Some part of it will definitely come to us, and that is going to be huge. We should all be attentive to such opportunities and attract some part of that investment into our own industries.
Audience question: We too are in the machine tools industry. The biggest problem we face is that as importers, this year we are not really sure of what the market is going to look like. As an industry we were already going through a low point and now this pandemic has pushed us further down. What kind of recovery measures one should adopt to recover from this pandemic?
RR: In the short term, we have to be cautious because a [machining] product is not a general product. We have two likely scenarios: one is pessimistic and the other one is optimistic. The realistic scenario looks closer to the pessimistic than the optimistic in the medium-term. By medium term I am talking about a six month to nine-month time frame. In the long run, positive changes will happen.
In the machine tools industry, we are seeing two different phenomena — one, the average price of the machine is going up, and two, the number of accessories of a machine is going up, which means that people don’t just want straightforward machines. They want value addition. And there is a demand for automation — about 40 percent of machines are seeing smaller or bigger tasks automated into them. So automation is going to be the flavor going forward.
What is your message to entrepreneurs and professionals about how to deal with the current situation?
NJ: The number one message is that try and look at the positive side of this crisis. There is an opportunity to reset yourself. One hardly ever got a chance like this. Not only from the organizations perspective but also from your own perspective. Relook at how you do business. I think this is a once-in-a-lifetime of opportunity. Whether it is domestic or global trends you have no control over them; the only control you have is over your company and yourself, so work on that.
RR: Even more, this is a once-in-a-century opportunity. It is only after [The Spanish Flu Pandemic] 1920 that probably something came like this. Let’s make use of it. We will be wasting this chance if we don’t make a difference for ourselves. I want to read out a quote from Khalil Gibran which is about the tedious path of a river before it meets the ocean. The ocean here represents the opportunity we have at the end of this tedious road before us.
FEAR — Khalil Gibran
It is said that before entering the sea/a river trembles with fear.
She looks back at the path she has traveled,
from the peaks of the mountains,
the long winding road crossing forests and villages.
And in front of her,
she sees an ocean so vast,
that to enter/there seems nothing more than to disappear forever.
But there is no other way./The river can not go back.
Nobody can go back./To go back is impossible in existence.
The river needs to take the risk/of entering the ocean
because only then will fear disappear,
because that’s where the river will know/it’s not about disappearing into the ocean,
but of becoming the ocean.
Seventeen Samurai: Executive Profile
Ravi Raghavan, MD, Bharat Fritz Werner (BFW)
BFW was born in 1961 to realise the dream of a young economy that was on the cusp of industrialisation. Ever since, we’ve been at the heart of manufacturing. We’ve supported the growth of the Indian industry by creating the machine tools vital for industries, across verticals – from plastic buckets to aerospace projects. Mr. Raghavan has more than 25 years experience in engineering and manufacturing, having worked in various positions in Projects, Manufacturing, Business Development, IT, Strategy and Engineering Services..
Nishant Jairath, Director, Metalman Auto Pvt Ltd.
As Executive Director of Metalman Auto Private Limited, Nishant oversees management of all business operations, manufacturing, marketing, and sales of a company that is rapidly growing. Over the company’s 26 year history, it has expanded from a small-scale business to a multi-faceted corporation that is dedicated to supplying precise, defect-free parts at a competitive price with unparalleled customer service.
Metalman is a one-stop shop for the fabrication needs of global automotive OEMs, heavy fabrication and construction equipment, off-road vehicles, and white goods industry.
