Switching Gears

When Rockwell Automation, the US-based $ 4.3-billion, 100-year-old manufacturer of plant automation equipment "" switchgears, drives and programmable logic controllers "" entered India in May 1985 it had a tough task on hand.

Its brief was to sell state-of-the art plant automation equipment to a developing country that had a clear bias against capital-intensive production techniques.

Beating the odds, Rockwell did precisely that and built up a solid base that included large corporations like Bharat Heavy Electricals Limited (Bhel), Rashtriya Fertiliser, SAIL, National Mineral Development Corporation and so on.

In ten years' time, there was a radical swing. Thanks to the long arm of liberalisation and the changing dynamics, the market shifted to an entirely different class of users "" in this case, the original equipment manufacturers (OEMs).

The opening up of exports saw the flourishing of OEMs "" in trade parlance, the unorganised sector "" with the international market outsourcing equipment from them.

Today, the OEM market in India is worth Rs 100 crore.

Rockwell realised that the larger companies would soon suffer from capacity utilisation and would not be giving them repeat orders in a hurry.

But "OEMs would give us not only the volumes, but repeat orders as well," says Ranjan De, president and country manager, Rockwell Automation. It could also cut down on costs as the exports procedure would be taken care of by OEMs.

So how has Rockwell's OEM strategy fared? Rockwell already enjoys a 26 per cent market share of the Rs 100-crore OEM market.

In the larger context, the company claims that it enjoys a 24 per cent market share in the Rs 338-crore automation market "" and is second only to Siemens.

The Strategist examines how Rockwell evolved its marketing focus to OEMs using discreet and below-the-line promotional methods.

In the first few years, Rockwell managed to carve a niche in the competitive plant automation market.

Much of this came from focusing on large public sector corporations (this was because the public sector dominated heavy industry before liberalisation).

Yet, despite steadily increasing order sizes "" from Rs 45 lakh in 1985 to Rs 1 crore in 1986 "" the market for Rockwell's automation products remained disorganised.

Imports of plant equipment came loaded with automation equipment so there were no indigenous suppliers for automation equipment.

Further, the market was probably not worth more than Rs 30 crore to 40 crore in the late eighties.

"We were introducing automation to a country that wasn't even half-modern and used labour-intensive production methods," says Debashish Ghosh, manager, commercial marketing, Rockwell Automation.

Since the public sector dominated the scenario, selling was also tough. According to Ghosh, it was "an uphill task" to educate decision-makers since those in key positions were non-technocrats.

The company targeted decision-makers through Data Highway, a newsletter.

By 1991, the company's turnover touched Rs 13.27 crore "" up from Rs 5.52 crore in 1986. Rockwell's client base of cement, fertiliser and materials manufacturers remained vital: in 1991, upto 93 per cent of the company's business value came from large end-users.

However, investments in new plants in these segments began to taper off. This meant that future demand from large end-users "" and their large orders "" would be increasingly scanty.

But with the consumer boom, investments in sectors like pharmaceuticals, food processing, cars, and materials handling began to grow, in stark contrast to the commodity-making industries (like cement, fertilisers, steel and so on) that Rockwell had been working with.

Side by side, there was a new trend emerging. Between 1995 and 1997, Rockwell's turnover shot up from Rs 57.75 crore to Rs 92.20 crore.

Of this, the contribution from OEMs had began to contribute more to the company's kitty "" from about 7 per cent of Rockwell's annual business in 1991 (with a turnover of Rs 13.27 crore) to about 15 per cent in 1997.

Yet Ghosh says that the company "had to change strategy". This was because Rockwell had not been addressing the needs of OEMs especially in terms of low-cost Rockwell products.

"For instance, we could never have sold a SCADA (Supervisory Control and Data Acquisition) product costing between Rs 20 lakh to Rs 50 lakh to OEMs. We'd been too focussed on the larger players.

In 1998, we began to consider how we could communicate our offerings to OEMs," says Ghosh.

Roadshows was reckoned to be a good option, as they were "personal while being comprehensive".

From 1999, Rockwell began its roadshows focused on its traditional clientele of large end-users, OEMs as well as users in the consumer products industry.

Its Food and Pharma Roadshow in January 1999 in Mumbai attracted about 75 OEMs "" of which five subsequently became clients. The Oil and Gas Roadshow in Baroda attracted about 150 OEMs.

In early 2000, the company's Automotive Industry Roadshow in Chennai focused on OEMs in the car industry (the company bagged a large order from Sundram Fasteners six months after that).

Then Rockwell started taking its roadshows to smaller cities like Vishakhapatnam, Bhubhaneshwar, Chandigarh, Coimbatore and Baroda.

In August 2002, Rockwell organised an OEM Roundtable at Hyderabad with 150 participants "" 20 per cent of whom were new OEMs, in addition to the non-Rockwell end-users of those OEMs. This time, the company tried a new tack.

Instead of the Rockwell staff making presentations about its products, the company let the OEMs do so.

Admos, a Hyderabad-based OEM manufacturing packaging machines, showed how its end-users could save $ 130,000 annually by using Rockwell PLCs.

Meanwhile, the company's turnover grew to Rs 116.36 crore in 2001 "" and OEMs accounted for 22 per cent of that.

In 2002, the turnover stood at Rs 127.52 crore, with 23 per cent business coming from OEMs.

Simultaneously, the company increased the number of its channel partners "" distributors and engineering solutions providers "" from 75 in 1999 to about 100 in 2003.

With an installed based of 10,000 Rockwell clients, each channel partner handles over 100 clients.

Today, Rockwell has 44 vendors in sectors ranging from infrastructure providers (NTPC, L&T and Alcatel), petroleum, metals (Krupp and L&T), paper and consumer goods (Alfa Laval and Precision Gears).

In March 2003, Rockwell opened a channel partner office in Dhaka to service clients using its products that had entered Bangladesh a la OEMs. It plans to open an office in Sri Lanka shortly.

But a time may soon come when the OEMs will be in the driving seat, and Rockwell may well have to take instructions.

For instance, according to De, "End-users are focusing increasingly on their core competence, so we must dovetail with OEMs. Otherwise they will go to the competition."

Will switching gears work out in the long run?