United Technologies wants its three businesses in India — Carrier, Otis and UTC Fire & Security — to work in tandem. Will it pay off?
The thought behind the integration is pretty simple. Air-conditioning, elevators and security systems are bought by real estate developers for residential and commercial buildings, airports, hotels and hospitals. Instead of selling each of these products separately to the developer, why not offer all together in one solution? For the three companies, it of course means more business. For the developer, it is lesser hassle, some savings and optimisation of operating expenses.
United Technologies, says Irani, has the capability to make these products talk to each other. Surveillance equipment, for instance, can detect when a conference room is unoccupied and turn the air-conditioning down automatically. Smart elevators can reduce travel time within buildings. Irani plans to sell these integrated packages to projects that are on the drawing board; and those off the ground offer cross-sale opportunities: A developer who has bought Otis elevators can also be sold Carrier air-conditioning and vice-versa. United Technologies has sent a specialist over from the US to India to handle the key accounts.
Convinced this is the right way forward, Irani has moved fast in the last few months. Each of the three companies has a new chief executive. The overall leadership team has been strengthened with a dozen or so new appointments. More could follow. Another specialist has flown in from the US to help Irani in business development through acquisitions and joint ventures. These will be driven by market access, brands and engineering capabilities.
| UNITED TECHNOLOGIES IN INDIA | |
| Turnover: | $500 million ('2,353 crore) |
| Sale/service offices: | 80 |
| Employees: | 3,400 |
| Channel partners: | 1,100 |
| Factories: 3 (Carrier in Gurgaon, Otis in Bangalore and UTC Fire & Security in Navi Mumbai) | |
All told, Irani wants to grow United Technologies’ commercial companies in India from around $500 million (Rs2,353 crore) now to $2 billion (Rs9,413 crore) by 2015. (Since the businesses will be in investment mode, he hopes to hold on to his profit margin of over 10 per cent.) The market for commercial air-conditioning, elevators and security systems is around $3.2 billion (Rs15,062 crore) in size right now. Irani reckons it will double in the next five years. His target is, thus, to leapfrog the United Technologies market share from around 15 per cent now to 30 per cent by 2015. At the moment, Irani says, every fourth elevator installed in the country is an Otis, and every third commercial air-conditioning plant is a Carrier.
Though United Technologies offers integrated solutions elsewhere in the world too, this is the first time that a formal structure has been put in place to make the three companies work together. Why India? Irani cites two reasons. One, the market for air-conditioning, elevators and security systems will grow rapidly in the days to come. Various estimates by the government, consultants and experts talk of rapid urbanisation and upgrade of infrastructure in the days to come.
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Two, the Indian market is still concentrated in the top dozen or so cities. The first mover advantage could be Irani’s. Not that he thinks it matters. “I don’t see any rival who can offer the same portfolio of products and services as us,” says Irani. Still, in the last three months, Irani has met 120 developers in 10 cities. Several of them, he claims, have bought his story. What also helps is that there is very little commonality between the customers for air-conditioning and elevators (security systems is still small). So this opens new cross-sale opportunities. “The upside is substantial,” adds Irani. Otis and Carrier have been around in India for long. The first Otis elevator was installed in Raj Bhawan in Kolkata way back in 1892. Carrier’s first touch point was the Rambagh Palace in Jaipur in 1930. They presumably have a long list of customers, which Irani hopes to leverage to his advantage in the days to come.
Betting on green
Irani expects the environment-friendliness of his products to come handy in the sales pitch — air-conditioners, elevators as well as security systems. “This will be a big driver of demand,” says he. “India has stringent emission targets for 2020. Buildings account for 40 per cent of emissions, and that can be improved by 70 per cent by using better technologies.” Thus, buyers of Otis now have the option to buy ReGen, a regenerative elevator. When it goes down and gravity takes over, it becomes a generator and converts potential energy into electrical energy. This, Irani claims, can save energy used in running the elevator by as much as 70 per cent. Buyers can also go for a flat belt made of composites instead of metallic ropes to move the car.
The building thus saves space because it doesn’t require a machine room. Also, unlike ropes, it does not require regular oiling or maintenance. For air-conditioning, Carrier offers variable speed chillers which cut operational expenditure by 40 per cent. “As many as 40 per cent of the green buildings in the country have been air-conditioned by us,” says Irani. Marioff fire extinguishers use 90 per cent less water than conventional sprinklers, and do not damage the site of the fire — they term a thin film on the surface which can just be wiped away with a piece of cloth. Given the scarcity of water in the country, Irani thinks it is just the right thing for India.
But will it sell? Real estate developers say it’s all very fine but much will depend on the cost. Green technologies, they say, are expensive. Adoption in a highly value-conscious market like India will depend on the cost. “Much depends,” says one Delhi-based developer, “on the ability of buyers to pay. If the residential market is driven by low-cost housing for the middle classes and the commercial market by information technology companies (which work on wafer-thin profit margins), then I don’t see too many buyers for such sophisticated systems.” Irani, on his part, knows that his environment-friendly equipment could be expensive but says payback is quick. “In most of the equipment, we think the payback should not be more than two or three years. After that, it only adds to your profits,” says he. Irani also expects buy-in from architects and city planners for such integrated offerings.
Building synergies
Of course, Irani is bullish on the future of his three companies. “We are going to change the way we look at building solutions here,” says Irani. To integrate the three businesses, Irani has formed three councils. The first is the marketing council. It ensures that all sale pitches are made by a team that has representatives from all the three companies. It also follows leads that any one company might throw up. The potential customer gets to see one face of the United Technologies commercial companies. Irani says he goes for several of these pitches. “About 70 per cent of my time is spent with the customers,” says he. “Every meeting that I have been to, there has been an opportunity. I haven’t walked out of any meeting without a tangible opportunity that we cannot go and convert into an order.”
The second is the operations council. To begin with, it looks at synergies in sourcing products like steel, services like logistics and manpower. This, according to Irani, has already resulted in savings of 10-15 per cent. The next focus area is manufacturing excellence. All United Technologies factories across the world are ranked gold, silver or bronze on the basis of their competitive excellence. The target for Irani is to move all the three Indian factories to the gold standard by 2015. At present, most of the operations are silver, says he. The third focus area is new production capacities.
Given the growth targets set by Irani, it is essential for the factories to produce more. There could be substantial investments into manufacturing over the next two to three years, says Irani. The last is vendor development. The best factories can go to seed if vendors do not supply components of the right quality at the right time and price. The target here is to move the 50 key vendors to the gold standard. At present, the three companies have hundreds of vendors; there could be some rationalisation in the days to come, says Irani, to bring in more efficiency into operations.
The third is the human resources council. It focuses on how the three companies can share talent to grow the business. Some bit of it has already started happening.
Again, United Technologies has shipped a specialist from the United States to drive this council.
What has not been integrated is backend support. The three companies — Carrier, Otis and UTC Fire & Security — have sizeable revenue possibilities in after-sale service. Irani says these have not been brought under one roof because his hands are full at the moment. But that could be the next step in the integration. And will the integration lead to a merger of the three companies in India? Of the three, only Carrier is listed in the stock market, though trading in its shares is very illiquid. So, a merger is not difficult. Irani says there is no such plan. “So long as we can deliver value to our customers in the current structure in a cost-competitive way, there is no need to merge,” says he.
This still leaves one part of the jigsaw out. Carrier was one of the early entrants to the residential air-conditioner market. But it has been left behind in the race by Korean street fighters LG and Samsung. Irani says that Carrier’s share in this market is almost 10 per cent. But rivals say that Carrier has become a bit player. “A first-time buyer of air-conditioners could look at other brands, but an experienced buyer will have Carrier in mind,” says Irani. “Loyalty to our products is high. There is a chance of over 50 per cent that somebody who has bought a Carrier will buy a Carrier again.” Irani also claims that Carrier’s consumer satisfaction scores are high, though he does not disclose the numbers.
Like elevators and commercial air-conditioning, Irani has tried to create the USP of energy efficiency and environment friendliness for Carrier residential air-conditioners. The Bureau of Energy Efficiency rates all air-conditioners; the best gets five stars. “Most of the air-conditioners we sell are in the four- and five-star range. Others also have similar products, but most of their sales are congregated around two- and three-star air-conditioners. That’s our positioning,” says he. Carrier air-conditioners thus sell at a 10 to 20 per cent premium over rivals, but that can be recovered in the form of lower electricity bills within two years, according to Irani. “If the usage is heavy, it can be recovered in less than one year.”
That may be true but Carrier hasn’t gone to town with the energy efficiency of its air-conditioners. In fact, rivals like Voltas have been quick to latch on to the bandwagon. Irani says it will happen in good time. “It’s a question of prioritising our investments. Our focus has been to make sure that our platform is solid. We have invested in our factory. We want to make sure that if we go to town, we should have a good platform. Once the timing is right, we will do that.” Most air-conditioner brands spend up to 8 per cent of their turnover on promotion. Irani acknowledges that his budgets are smaller in comparison. A large bit of the advertising money goes towards architects, consultants and trade journals. That, of course, ties in with the bigger gameplan.