'We don't want to grow too fast'

Q&A: T K Banerjee

T K Banerjee

Just a week ago, over 60 top dealers of Chinese consumer goods major Haier India jet-setted to China to get a glimpse of real "economies of scale". In Quindo, dealers visited the company's AC factory that churns out 20,000 ACs a day. T K Banerjee, president and CEO, Haier India, talks about the stigma of Chinese products in India and how the company is trying to rewrite the rules of the game. Excerpts from an interview with Business Standard:

Chinese consumer good companies came to India but were unable to make a dent in the market. There were doubts about their quality and the product. How did you take on this stigma about being a Chinese product?

Just five months after we launched in India we undertook a survey of customers on their brand perception of Haier. The study came out with a startling revelation "" 97 per cent customers who bought our products did not believe we were a Chinese brand. They thought we were from Germany or from the US, and they were all happy with the quality of the product.

How did you manage this positioning, especially when Chinese brands like TCL and Konka, which came before you, could not make it work in India?

First, the problem with all the previous Chinese brands was that they had no quality control of their products and no clear vision for India. They thought if you give Indians cheap products, they will pick it up.

We spent a lot of time in deciding what our brand strategy should be and wanted to focus on the fact that we are the world's second-largest home appliances company. We projected the image of a global company that comes out with 1.3 new products every day in over 16 development centres across the globe. Haier was projected as a global brand that delivers latest technology.

But India is a price-sensitive market and the Chinese are known for cheap products. They are not known for high technology.

That's not true. Expect for three manufacturers in India, virtually everyone is importing high-end, premium products from China "" 70 per cent of mobile phones, 100 per cent of high-end microwaves and a large majority of plasma TV sets are manufactured in China. China is the hub of both mass and high-tech products.

We decided to first go for the premium-end of the market. We decided not to play the pricing game, but if others decreased their prices, we would follow. So, for instance, when we entered the 20-inch colour TV market, it had three segments, low, middle and premium. We entered the premium-segment first. We charge a premium of 5 per cent on our products as compared to the competition.

Also, we realised that product differentiation has to be the key if we charge a premium. So, for instance, we brought the bottom-up refrigerator where the freezer was at the bottom, so that people do not have to bend to get things out of the fridge.

We introduced double-drive washing machines "" a new technology that reduces energy and water usage by half. We display details like silence levels of ACs and energy efficiency on our products, something that is not required by regulation, but customers should know.

It's good to be in the premium-end of the market, but take the example of refrigerators "" direct-cool refrigerators constitute over 80 per cent of the market and frost-free still has a long way to go. You cannot make money in direct cool.

It is true that everyone is bleeding in the direct-cool segment. But we have to be in that segment to build a distribution chain. You cannot sell only frost-free "" there is a small or no market for them beyond the major cities.

It is a commodity market, but because of our premium image we get some rub off and can charge a premium of 2 per cent. We don't want to be the major players in this market. But there will be a paradigm shift as new technologies are changing the marketplace.

For instance, the difference in price between a direct-cool and a frost-free is about 25 per cent. But new technologies in direct-cool will make it possible to offer facilities like no defrosting and no ice accumulation in a conventional fridge at, perhaps, a 10 per cent premium. We are already doing a survey to see how big this market is.

The Koreans are dominating the Indian consumer goods industry. How do you think you will take on their domination?

Globally, they are smaller than us, so if it has happened all over the globe, why should it be different in India? The only difference is that we came late into India and so we have to face that disadvantage.

Samsung is now focusing on the higher end of the market and is making an effort to build the brand. LG is concentrating on the lower end of the market by adding on freebies. We will, of course, have to face competition from Samsung in the higher end of the market.

We are a stronger brand globally in appliances, it is a stronger brand in consumer electronics. But we also are coming in a big way in consumer electronics and IT products like mobile phones and laptops.

Don't you think you are over-reaching yourself? You have forayed into mobile phones in India but that is a market dominated by Nokia and Samsung and you are an unknown entity in that area.

We conducted a market research and decided to come out with an entire range of phones "" seven models between priced between Rs 3,600 and Rs 15,000. We also brought in the slimmest phone in the world.

Ninety per cent of the mobile market is dominated by four or five brands, where we want to be, too. We plan to sell half a million phones in the first year. We realise the importance of having our phones displayed in the showrooms with other competing products; we are already in 2,000 outlets.

Korean companies have shown their commitment by investing millions of dollars in India. You have still not made any major manufacturing investment in the country. Are Chinese companies like Haier following a different strategy in India compared to the Koreans? Or will you import from Thailand and take advantage of the Free Trade Agreement?

The biggest concern for the Chinese and Haier has been to manage the speed of growth. If we had gone for a price war, we could have easily doubled the size of our business.

By June this year, we are looking at a turnover of Rs 300 crore. We don't want to grow too fast. So far we have been importing things like cabinet and proprietary components in TV, and buying picture tubes and manufacturing them in third-party plants dedicated exclusively to us.

But we are now planning to set up a TV manufacturing plant with a capacity of half a million sets. We will manufacture medium and high-end refrigerators, too.

We have refrained from fragmenting our manufacturing facilities so that we get the benefit of sales tax (by setting up small units in backward areas) just like other competitors. Even if this means our overall costs will go up, we have control over quality. We will also not go full hog on indigenisation if it means compromising on quality.

We have a factory in Thailand but it is not cost effective to import from there; it is easier to get them from China.

Does this mean you will not be a mass market player?

It is a matter of time "" we will hit the mass market by 2006, when we have enough brand acceptance. We want to be among the top five brands in five years and the top three in seven years. We want to get at least 10 per cent market share in each of the areas we operate in, in the next three to five years. Unlike the Koreans, we do not want to grab market share at any cost.