Chairman and Managing Director, Bharat Forge, Baba Kalyani says China offers opportunities for synergies with Indian companies for mutual advantage.
Bharat Forge has recently inked a joint venture with a major Chinese player. What is the significance of this development for your company?
In the past 24 months, we have been following a strategy that is aimed at establishing a manufacturing footprint in all major markets with a significant automotive industry. We, therefore, acquired companies in Germany, the US and recently in Sweden and Scotland. China is an automotive market that no company with global aspirations can ignore. They produce 5 million vehicles every year, the
market is growing at 11 percent per annum, and by 2010, the size of the market is expected to reach 10 million vehicles. Because of the sheer volumes involved, access to this market is critical and we, therefore, worked hard to create and capture the opportunity.
Our joint venture partner, the FAW group is the largest automotive group in China with a leading position in both passenger car and commercial vehicle segments. FAW has extremely successful JVs for car manufacturing with Toyota and Volkswagen with multiple plants in China. Our JV with the FAW group would, therefore, provide us with a powerful entry into the large and fast growing Chinese automotive market. Our tie-up will help us become the largest forging company in China with a strong customer base across segments covering numerous customers.
How did Bharat Forge go about its China strategy?
We have followed a step-by-step approach in implementing our China strategy. Till 2001-02, China played no part in Bharat Forge's exports. Our first breakthrough came in 2002-03 when we secured a five-year contract to supply engine components to a Chinese automotive OEM. This was followed by a similar contract with another customer, which resulted in China becoming Bharat Forge's second largest overseas market. The past three years have been an important learning experience for us during which, we have been able to understand the nuances of the market, peculiarities of doing business with Chinese customers and have gained an appreciation about the unique culture, customs and etiquettes followed in that country. Having established a presence through exports, the next step was to establish a manufacturing presence and when the opportunity came our way, we pursued it aggressively. What gives us immense satisfaction is that a carefully designed and crafted strategy has been executed and this has opened up an exciting window of opportunity into the future.
How did you harness your earlier experiences in China to ink the tie-up with FAW Corporation?
We were perhaps among the first in the Indian automotive component industry to have forayed into China. At that time, the traditional stereotype of Chinese companies, at least in our industry, was that they were 'unreliable' and manufactured 'poor quality' products. When we started doing business in China, this perception rapidly changed. We found that our customers were endowed with a strong global vision and had world-class capabilities. As a supplier to the Chinese automotive industry, we recognised that our customers were as discerning as global customers elsewhere in the world. In the past three years we have developed a healthy respect for Chinese industry and believe that there is a very real opportunity to use synergies between our companies for mutual advantage. There is also growing recognition in China about India as a potential leader in the global information technology and manufacturing sectors and a key player in the new knowledge age. Against this background, the FAW Group and we mutually concluded that a relationship between our companies would provide both of us unassailable strategic advantage.
With your recent acquisitions, and the China tie-up, what are your immediate priorities?
The joint venture in China completes Bharat Forge's dual shore supply capability across all geographies. We can manufacture any of our products in at least two manufacturing locations across the world. We now also have a physical presence in the fast growing Chinese automotive market that includes local OEMs and joint ventures between Chinese companies and with some of our key global customers. Our strategic objectives have, therefore, been largely met and it is now time to consolidate our position and create sources of competitiveness through which we will be able to derive sustainable advantage in the long-term. Our focus would be to seamlessly integrate our various global operations so that we can provide unmatched value to customers irrespective of the geography in which they are located.
Clearly, Bharat Forge has followed a well-defined strategy in these acquisitions, the JV with FAW as well as the earlier
acquisitions. What would you describe as the main elements of this strategy?
Our strategy has been to use inorganic growth to access new technologies, widen our market presence, expand our range of products, deepen penetration into new market segments, and establish a global manufacturing footprint. Our vision was to be a global player in our business. We realised that exports alone would be insufficient to realise this vision. We needed to establish a manufacturing presence in the global market in close proximity to customers. These would provide platforms to build strong, durable and long-term relationships that would facilitate our working closely with customers in their various vehicle development programmes. We also believed that such an approach could transform our dream for global leadership into reality. We are pursuing our goal with great passion and are confident of success.
We propose to structure our overseas operations in the US, Germany, Sweden and Scotland as technology front-ends that would support low cost manufacturing in China and India. Such a mix would enable us to leverage advantage over our global competitors and offer customers a strong value proposition.
You have gone on record to say that India is emerging as the best country option. From a business strategy viewpoint, how in your view should local players prepare themselves to get the best advantage of this?
I can, with great confidence, reaffirm that India has the opportunity to achieve "Top 2" position in the automotive component industry among low cost countries by 2015. At the macro level, Indian companies will need to develop global mindsets to build scale and achieve cost excellence; acquire market access including through overseas acquisitions; strengthen design, engineering and innovation skills; and develop a world class talent pool and organisation. At company level, it is necessary to design and implement company-specific roadmaps with intermittent milestones. I have great faith in the ability of Indian entrepreneurs who I believe are second to none. A few Indian companies under such visionary leaders and driven by a passion to be truly word-class have emerged as globally significant players. I am confident that many more Indian companies will join this august league and that in the next 3-5 years at least half a dozen Indian companies will attain positions of global leadership in their product segment.
Bharat Forge is a big player in its area of operations, and now part of a group with a global identity. Do you feel that smaller players in any automotive segment are at a disadvantage vis-a-vis the big players as they target more business from the mature markets?
Size does matter, and therefore, it is necessary for smaller companies to build critical mass and develop their own unique sources of competitiveness. One of the ways to do this could be through building synergistic relationships and leveraging them to secure mutual advantage. However, there are no customised solutions. It is for individual companies to determine their distinctive strategies, which would, among other things, depend on vision of the entrepreneur, the product segment that the company is engaged in and the special circumstances prevailing in each case.
Lastly, when a company goes about trying to enhance its business footprint, different strategies come into play that enable it achieve its goals. Should the ideal strategy be piecemeal or an umbrella one that evolves over time?
I believe that the hallmark of any good strategy is the need for it to have an in-built element of flexibility. We are living in a very dynamic environment in which change is a continuous process. Therefore, though a broad direction can be set, the ability to adapt to changing situations, circumstances and technologies is an imperative that cannot be ignored.
I have come across an excellent description of adaptability, which when applied to people means the ability to operate across borders with confidence; to rise above the particularities of regions and cultures; to revel in diversity; and the most difficult, to operate inspite of high ambiguity and frustration. At Bharat Forge, we are attempting to create a cadre of global managers with these qualities and charge them with the responsibility to continuously develop new sources of competitiveness that would secure our company's long-term future.
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