In August, DuPont announced that it will drive its innovation engines to meet the increasing demand for food, protect people and the environment, decrease dependence on fossil fuels, and capitalise on growth in emerging markets. All four have strong resonance in India.
Agriculture accounts for about 30 per cent of DuPont’s business of $500 million in the country, split equally between seeds and crop protection. Industrial polymers bring in 25 per cent, titanium-dioxide fetches 20 per cent, and the paints business another 10 per cent. The rest is protection and safety and so on.
DuPont India President and CEO Balvinder Singh Kalsi says that the Indian operations of DuPont are profitable. Though other sectors were tough, thanks to the economic slowdown, the farm sector was robust in the last one year or so. All told, DuPont connects with around one million farmers in the country. Kalsi says he did not downsize his workforce when all others around him were doing so.
In fact, DuPont seems to have upped the ante in India of late. It recently acquired two cotton seed companies and has set up a knowledge centre in Hyderabad. The facility is a cost centre, which means it fits into DuPont’s long-term strategy and the company is not looking for instant returns on investment.
Kalsi, 52, has given a new rallying call to his 1,500-plus employees — Nova Invicta (never to be defeated). A chartered accountant by training, Kalsi has spent 18 years at DuPont. He spoke to Bhupesh Bhandari on the road ahead for DuPont in India.
How does DuPont see India — a market or a resource centre for the world market?
DuPont considers India a strategic market. We are very interested in growing our top-line profitably and aggressively. But it is not only about revenue. How do we fully leverage the benefits India has to provide for DuPont globally? And that is where the other aspect comes in. How do we do more research out of India, how do we do more design services out of India? It could be human talent sourcing or development of intellectual property. It could also be some selective essential material sourcing. So we are looking at India now from that comprehensive point of view. India could also be a base for us to try out new business models and see what works and can be replicated in other parts of the world.
Business models like?
How do you go to the market? Is there a different way to access that market altogether? Could you combine products and services together in certain areas?
For example?
In our seed business, we have an initiative called Uday where we don’t just sell our products to the farmers but we also provide a lot of agronomy services. We work with them very closely, we tell them what crop to grow, how will the weather impact the crop, what insecticide to use at what time, how to manage the crop better. So it is a very different model from the one where you just go and sell your product.
Abroad, DuPont is very strong in maize (corn) and soya bean. (It runs the business through Pioneer.) But in India you seem to be taking a different track — you have recently acquired two seed companies that specialise in cotton.
We participate in five different crops in India, which we normally do not do in most parts of the world. We are into corn, pearl millet (bajra), rice, mustard and now cotton also. Cotton is not there anywhere else in our portfolio. The starting point for cotton is India.
Genetically modified cotton was a big hit with farmers initially. But there seems to be some disillusionment with it now. Its resistance to bollworm has come down and this has brought down the yields. The perception in the mind of farmers is that it is not a long-term solution to problems like bollworm.
The good part about DuPont is that we participate in both sides of it. While we will play in the biotechnology side, we also have our chemical offerings. Over the years, the pest profile has changed. While genetically modified cotton controlled bollworm quite well, the incidence of sucking pest went up. But a new variety is out which is resistant to bollworm as well as sucking pest. This is nature. Anything you develop tends to develop some kind of a resistance over the years.
What part of your seed portfolio is genetically modified?
Currently, none of our seeds is genetically modified. All that we sell in the market are high-yielding hybrids, except cotton seed which we will sell. We have acquired Nagarjuna Seeds which has a very good germ plasm but it did not go out and sell it. The other company we have acquired is Nandi Seeds which has a good presence in the commercial market. It is a licensee for Monsanto. The first thing would be to sell Bt1 and Bt2. Over time, when we come out with our own traits, we should be able to integrate those into it.
Some time in the future, we will come out with genetically modified seeds for other crops as well. We have added two corn research centres in the country.
Such licences (like the one granted by Monsanto to Nandi Seeds) are normally for five years. By the time it runs out, will you be ready with your own genetically modified cotton?
We hope so. But apart from cotton, we see rice as a big opportunity. Like Pioneer is known to be the corn company of the world, we hope in India in some time it will be known as the rice company. There is a huge opportunity. You have almost 43 million acres under rice cultivation and very little of it is hybrid — less than 2 per cent. In China, almost 50 per cent is hybrid. At some stage, in the next five to ten years, if India were to get to 50 per cent level of hybridisation, you are talking about a seed market of $500-600 million. This does not include any tricks. If we were to come out with insect- or weed-resistant rice, then those values are separate.
Are you working on genetically modified rice as well?
Yes. Our first level of focus is to work on the yields. So, we are working on high-yielding hybrids and on reducing our development cycle. If you go through a traditional breeding process, it will take you four or five years to come out with a hybrid. But with some of the new technologies that we have brought in, we can cut that cycle to about half. And then simultaneously we are working on traits. One of the traits we would be working on is insect control.
Rice in the country is grown quite a lot in rain-fed areas. This year, because of low rains, the crop is 20 per cent lower. Are you working on a rice variety that can survive on less water?
We are working on a technology called drought resistance. It means plants should be able to survive with lesser moisture and lesser nitrogen in the soul. Such technologies will be very helpful in times of deficient rainfall like this year. We are talking about this product being ready by 2013-14.
There seems to be resistance from some quarters to genetically modified crops.
You are right. There is resistance but if you talk to anybody in the government, there seems to be a lot of support. I think the key decision makers want to go in that direction but they also have to make sure that the regulations and the testing processes are right. But if you see it from a long-term perspective, there is really no option. Acres are not going up. With urbanisation, the land available for cultivation will become lesser and lesser. We will always have variations in the climate, irrigation levels are just about 37-38 per cent. So there is really no other option but to find new technologies to feed the growing population. This is one of the mega trends DuPont is working on. The research we are doing on rice could take us to other countries in Asean and our neighbourhood too.
DuPont has set up a knowledge centre in Hyderabad. What is the brief for it?
This is something unique that we have tried to do in India outside the US. This is the first time that we have called a centre a knowledge centre. Normally, these are called research and development centres. And the thought there was that we are going to bring in various knowledge services under one roof. So what we are trying to do at the knowledge centre at Hyderabad is basic research which is focused on agricultural biotechnology, industrial biotechnology, and some areas of the front-end of the discovery work for our top chemicals. We will have product application labs for our various businesses. We can bring our customers in, where our sales and marketing people can work with our technology team. Rather than saying this is the product I have and how do I sell it in the Indian market, they should be able to find application and uses which are relevant for India.
Wouldn’t this often involve bringing the cost down?
Also some unique applications which may not have use elsewhere. Like pearl millet and cotton seed in which we don’t participate elsewhere.
We are developing very unique applications for Indian Railways, which we have not done anywhere else. We have developed components and parts that go into the carriages with our engineering polymers. This will replace the natural rubber used there which you have to replace every two or three years. Once you replace it with our polymers, this will increase the load-bearing capacity. And it lasts for eight to ten years. Your cost is also lower over the lifetime of the polymer.
We have developed a polymer which can replace the rubber under the wooden or concrete sleepers on which rail tracks are laid. The tracks have to be ripped off every two or three years to replace the rubber. Our product could last for ten years.
In our whole evolution, we go through three phases. One, when we try to establish our presence. Two, when we try to enhance our capability to serve the market. Three, when we try to optimise our presence in the country. In most businesses, we are in phase one or phase two. In some businesses, we can start looking at some unique applications for India.
There is another product under development called Sentry Glass. It can be engineered to take the impact of a bullet. So it becomes a security glass. It can be used to stop burglary. You can break the glass but not cut through the film inside. One of the things we are debating is a security cabin with a glass. It could be unique for India. This could replace the posts with sandbags used all over right now.
We also have a product called elvaloy which modifies bitumen to make it much more binding when it is mixed with concrete. It can then take more extreme temperatures. We met (Minister for Surface Transport) Kamal Nath recently and told him that for your mission to build 20 km of roads every day we have a product which will be lower in cost than what you use at present. In fact, the Baroda-Ahmedabad expressway has already used it.
Some years ago, DuPont had made an aggressive push into automotive polymers. What inroads have you made in India?
We work with most of the large companies. The main portion of the engine where the pistons run, we are trying to convert it from aluminium to engineering polymers. Even in the Nano, we have a number of components.
Has DuPont shifted research work from outside to Hyderabad?
The centre is not working in isolation. It’s very much a part of our global research and development. So, you could imagine this as an extension of one of our research and development centres outside the US. These are all networked centres which work on programmes which are global in nature. For example, if you develop a trait of drought resistance (for a crop), it is applicable not just in India but throughout the world. It could start off with corn and we can then put the same trait into rice and other crops. We are not saturated in terms of work.
What is the cost advantage that DuPont gets from the centre?
It depends on what work is being done. We also do a lot of back-end related process work in finance and accounts, sourcing and sale support. On a thumb rule, the manpower cost in India is around 40 per cent of what it is in the US. So, for the same money, you can get more out of India.
What is the kind of work DuPont is doing in industrial biotechnology?
In industrial biotechnology, our effort is to convert cellulose into ethanol and butanol. After you have taken the corn seeds, what do you do with the plant? We have technology that can convert it into ethanol. We have demonstrated it on a pilot scale in a lab. The question is how do you scale it to a commercial level? The government has programmes for up to 20 per cent blending (of ethanol with petrol) to reduce our dependence on fossil fuels. The first step is ethanol but a better form of fuel is butanol. It is more energy efficient and has better blending properties.
Photovoltaics will be another huge opportunity for us. We have seven materials that go into the making of a solar panel. We don’t make panels ourselves but we will work with large companies that make them and provide them with the materials. In the next phase, we will work with them to increase the efficiency of these panels. We will see if some materials that are being imported can be made locally. In the third phase, we will see if we really need a product that is unique to India? How can we light up a whole village at a low cost? Then we will begin to work on material that is unique for India.
Is your ethanol technology at a commercially viable price?
No, we need to work on it.
Are your prices what they ought to be? Is there scope to drop prices?
The current applications we are in are very specific and unique where it doesn’t matter from a cost perspective. If there are other mass areas that we want to get into, then the cost will become important.
Must DuPont stick to intermediate products in the country? Is there any possibility of DuPont getting into the market for say cosmetics with its own line?
In certain businesses, we have products that go to the end user. Apart from our agricultural products business, there could be a few other sectors where we might go directly to the customer. We have a nutrition business of soya protein under Solae. Currently, it goes to Cadbury, Amway and others as an ingredient. We are looking at a direct entry into the market. But by and large we will stick to our B2B model.
Solae had forayed into the market on its own. What happened?
It had launched soya chunks under its own brand. We are not aggressively working on it. Chunks have become a commodity business. Anybody can do it. We are focusing on high-quality soya proteins.
What’s the B2C way ahead for Solae?
Solae may not directly go to the customer but we may work with other entrepreneurs to take our products to different markets. Health-conscious people do not have direct access to good quality proteins. So how do we find a way to get it to people like them? So we might work with a person who will focus on only say the corporate sector or the working class. Normally, protein today is sold in tins or boxes. Can we convert it into something more interesting by adding say a vanilla or strawberry flavour? And instead of a one kg pack, put it in a 30 gm sachet? If you get addicted, you want to have it everyday.
We might have a partner who will take it to the market. The proposition will come from us, but we don’t have the expertise to touch every centre. We will help in concept and product development, how to go about the branding, but marketing it to the final customer will be the partner’s job. Something maybe requires to be sold to doctors alone. For that we will need a separate partner.
How big could this business be for you?
India is the world’s diabetes capital and we are also the world’s leader in malnutrition. In both the sides, the need for protein is phenomenal. You are talking of an opportunity in hundreds of millions of dollars. The question here is how do you change habits? How do you get it out to the market and educate people? Somebody who can’t afford a meal, how will he take protein? He first wants food. If you can find the right application, the market size is huge.
You could go through the government-sponsored mid-day meals at schools.
The question is if the government wants to spend only Rs 6 on a hot mid-day meal, rather than 10 gm of powder, can we supplement it at some incremental cost so that the protein intake for the child is higher, yet it does not disturb the basic philosophy of what the government wants to do? Can you dovetail into that?
There is a growing trend amongst commodity companies like you to take a stake in large customers.
We are very actively debating it. Going forward, that will be one area of consideration for us. We haven’t done it as of now. But as we look at our growth and expansion plans, that will definitely be a part of it. The stake we take will depend on the strategic intent. It could be to strengthen our relationship, it could also be to support the partner. A 10 per cent DuPont stake could mean much more than just money in the external world. In certain cases, we may want a controlling stake where we believe we want to drive the business.
A company like DuPont would face a number of issues related to intellectual property protection in the country.
Intellectual property is an issue. We do see infringement of brands and patents. But things are moving in the right direction. The enforcement needs to be improved.
