Gautam Thapar is chairman and CEO of the $4-billion Avantha Group, which includes the power transmission and distribution equipment major, Crompton Greaves (CG), and the paper heavyweight, BILT. He spoke to Pallavi Aiyar at the port city of Zeebrugge in Belgium, where CG has been involved in the design, solutions and manufacture of equipment for one of Europe’s most ambitious offshore wind projects, the Belwind wind farm. He speaks on overseas acquisitions, why China is not on Avantha’s horizons and the continuing difficulties Indian companies face in making the leap from international to truly global entities. Edited excerpts:
Avantha has made a strong push in Europe, with several acquisitions for Crompton Greaves and Global Green. Given the slowdown here, how do you foresee growth in the region?
It’s not like there is no growth in Europe. The slowdown is in certain sectors but in energy, particularly renewables, there is growth. It’s a good place to be when it comes to CG. But in other sectors, it’s a difficult time for acquisitions in Europe. In the period between 2003 and 2008, a lot of companies became spoilt and even today, they think the valuation their business got in that period is here to stay. It isn’t because the growth is not there any more. There is a clear reluctance to adjust thinking to new realities in the region.
But is Europe’s crisis an opportunity for Avantha?
Yes, in some ways. We have good relations with Indian banks, with major operations overseas, so financing is available to us and we are in a good position to look at opportunities. But we are very conscientious and don’t want to overpay either. There’s enough growth within Avantha for us not to need to go out and buy that growth.
But, then, why have you been acquiring assets so aggressively in recent months?
Our focus outside India has always been on technology because in India, you are still not there when it comes to many industries as far as innovation, consortium working, etc are concerned. So, for CG, going global has meant access to talent and knowledge where it is available, rather than having to create it in our own environment, which would be very difficult. In India, there is in fact much more innovation in services than in manufacturing, with the exception of the auto sector.
Interestingly, in Europe, all major countries are beginning to talk about how industrial policies are needed even in economies where the GDP is very skewed towards services. There is a realisation that a strategy for manufacturing is needed even in the UK, where it is only eight per cent of GDP. The financial world is the most fickle thing. Money is here today, gone tomorrow.
What lessons can India learn from Europe’s current predicament?
To retool its manufacturing economy. Our legislations are still outdated, like the Factories Act and some of the labour laws. There is very little support for research and innovation from the government. A small country like Belgium is putting together a $500-million fund just for offshore wind energy; in India, we have nothing.
How have you managed the challenges that going global create for corporate culture and the work force?
Within Avantha, CG is a good international company but to become truly global, we have to move to the next step. When you think globally, you think in a very different way to internationally. In the latter, you still think in terms of specific markets and geographies but when you think globally, you think of things you can achieve or roll out worldwide. But for that, the kind of resource and managerial capability required is totally different from that in a good international company. Most Indian companies today are still at the cost-productivity stage and not able to manage the complexity and environment that truly global companies can.
What will it take for Avantha to make that leap to become a global group?
We have started to make the leap. It starts with recruitment, training, and exposure. But the transition is not easy because more than a way of working, there is a big cultural transformation that has to take place and in India at the moment, we just don’t have the critical mass of young managers exposed to the world. So, many of us are trying to find Indians who have worked for MNCs outside of India, to bring them into the system.
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As an Indian firm, were there special challenges of acceptance when you bought European companies?
There is always tension. If I come and buy you and you’ve been around for 40-50 years, the uncertainty and fear factor is huge. People feel you’ve bought the company but you have not bought my mind, my loyalty. So, you need to earn that right. If it was GE that had bought Pauwels ( a Belgian power transformer manufacturer acquired by CG in 2006), it would be a very different reaction because it is already an established global name. But when a CG comes in, we have to earn our spurs, so there is an extra mile or three we have to walk to get to the same place. But if you do it right and start showing results, then the initial fears that these people have come here to buy us and move all the jobs to India disappears. In fact, we have created new jobs in the locality. So, after that hurdle is crossed, the coalescing is very quick.
How seriously are you looking at China as either a market or manufacturing base?
China is a difficult country because there is very little complementarily in the way we do business. There is such a huge amount of state support there that it’s difficult to find an entry point. If you want to supply equipment to the Chinese grid or power sector, despite the fact that the whole world is signed on to the International Electricity Association and we send all our equipment to be tested there, the Chinese don’t accept it and you have to send your equipment to China for testing. The testing alone costs '10 crore and your equipment is lying on their test floors for months on end. At the end of the day, you may not get approval because it does not meet Chinese standards.
So, why would we really want to go to China? The market is not open to us, there is potential for IPR (intellectual property rights) theft and there are two clear sets of rules: one for Chinese and one for non-Chinese. As far as manufacturing is concerned, why would we go to China? India has very competitive manufacturing. So, for the moment, China is not on our horizons.
So, what new markets are you looking to diversify into?
South America is where we’ve been supplying a lot of equipment power, to the grids in Chile and Peru. We’ve been looking for a beachhead there and we thought we had one three years ago. But it didn’t work out and we are now in discussions somewhere else.
What are your targets for Avantha’s growth overall?
We are currently a $4-billion group. We had targeted $10-billion by 2013 but 2008-09 was a bit of a setback for us, like everyone else. We are now confident of making that target by 2015.