India’s sharpened focus on its manufacturing sector means even better times are ahead for its already high performing manufacturers, such as leading tyre maker Apollo Tyres, whose products are available in more than 100 countries. Its Chairman and Managing Director Onkar S. Kanwar discusses India’s assets and advantages that will bolster its manufacturing might and present tremendous opportunities to international investors.
India has been labeled as a bright spot in the world’s economy. Do you think it is going to outplace China as the world’s growth engine?
India is a continent, not a country in the traditional sense. It is not right to compare India with China. The systems of governance are very different. India has very strong fundamentals. It has many educated young people, with entrepreneurial spirit. China may not have this at such scale. Whether we use the example of Microsoft, or any pharmaceutical or manufacturing companies, India is becoming a global back office for R&D. This is driven by the availability of talent: every year we are graduating more than a million young people.
The only thing India has lacked is the focus on manufacturing. India took a leap from agriculture into the software services. Now, if you see the demographics, it is clear that not everybody is qualified to be part of IT. Therefore, it is crucial that manufacturing takes off. Our GDP is skewed 55% towards services, whereas manufacturing is around 16%. Prime Minister Narendra Modi has taken up the challenge to increase the share of manufacturing to 25%. He has re-opened the doors to the world. Today India is seen as a bright spot; even within the BRICS, India is in a privileged position.
What are the main requirements to sustain this growth?
Among the major requirements is basic infrastructure. Our PM has done a great job by opening up the doors to investors communicating that in spite of challenges investors must come to India. We have a government similar to the British system. We have a House of Commons (Lok Sabha), a House of Lords (Rajya Sabha) and yet we don’t have the US-style federal system that might be needed for speedier decision-making. The present government has come to power with a full majority. But any major change in policy matters needs the approval of at least two-thirds of the representatives of the House of Lords, which is elected indirectly by people in the states. So, in the House of Lords, the government lacks a majority and key policy changes are delayed.
This is a country with vast opportunities. Unlike China, which was more dependent on exports, we have a vast domestic consumption market. The government is emphasizing infrastructure, whether it is in roads, railways, airports, ports or power stations. They are trying to address all these issues and are making a tremendous effort. But we as human beings tend to be very impatient and want everything done by yesterday.
Do you think that the fact that India is a democracy might be impeding certain developments like the GST?
Without democracy, we might be running faster, but I would rather be a democrat and go at a slow pace than be run by a dictator. We have always lived freely and expressed freely. I believe it would be good to have a system where the elected person is allowed to work for five years or you can have a review after 2.5 years. I think that is the challenge we are facing. Despite all these issues, PM Modi has made key reforms in areas like infrastructure, and others where foreign private capital can play a part and help move things faster.
What are your thoughts regarding the ambition of India to increase the GDP share of manufacturing from 15% to 25%?
Since the 90s, I have not seen any PM not saying that we do not want to move from 15% to 25%. When I was president of the Federation of the Indian Chamber of Commerce and Industries we were also talking about this. In order to happen, there has to be an enabling environment. India is trying its best.
If you look at the automotive sector, all the big players are here. They are making India an export hub. Why? Because they get competitive wages despite infrastructural challenges and they have better reach to the domestic markets as also those in the Middle East and other areas. Therefore, they are not just feeding the local market, but they are thinking how this can be made into an export hub. The big companies that are installing hubs in India are Hyundai, Nissan, GM and Ford. They are focusing on India because Chinese wages are going up whereas here the wages in our country are stable, people are more enterprising and innovations are taking place.
The Prime Minister is putting in his best efforts. I have known him as a Chief Minister of Gujarat, a state in the western part of India, and we have our factory in that state. I used to have a lot of interactions at that time; he had come personally to our factory and opened it.
A very positive development in India is the increased competition among states to attract investments. For instance, when Delhi set up the metro, every other city in India wanted to have a metro as well. Look at the potential of business in railways itself. We also have a good railway minister in Suresh Prabhu who is trying to see how to bring the private sector to work together. A classic case is GE and the government tying up to generate a $40 billion business. They are trying to ‘Make in India’.
The automotive sector is key for our company. Most of the automobile companies are here. According to estimates, the Indian automotive sector has the potential to generate up to $300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12% to India’s gross domestic product, Apart from that, India will become a major export hub. India will become the third largest automotive market in the world. Europe and Japan do not have growth in population. Soon, India will be the biggest exporter of people in terms of labor export. In the US for example, Indians are doing high-end work. Microsoft has 30% Indians.
Many of the brains that moved out of the country are starting to come back home. They see India as a land of opportunity. You would be surprised to know that India is the biggest recipient of remittance of money at about $96-$97 billion per year.
Do you think there is an opportunity in India by having international companies innovating here and export the innovations?
It is happening. In our case, in the tyre business, we have R&D centers in India and Europe. We were the first ones to acquire a company in South Africa: Dunlop Tyres. In 2009 we acquired Vredestein in The Netherlands. Our efforts are focused on investing in R&D and developing the brand. We are the only company exporting to over 100 countries in the world from India.
What do you think people think about India today? To what extent has the negative connotation of India impeded Apollo’s plans to globalize?
I think there is general positivity about India. From the economic standpoint, India continues to be the bright spot in the global economy and we are seeing a surge in investment in the country.
Also, I have not seen Apollo’s plans to globalize being impeded because we are an Indian company. We are very small. But that is the next journey. Our products are available in over 100 countries. We have a manufacturing presence in Asia and Europe. I don’t see slowing down of pace in terms of reaching out to new markets in the immediate future.
What is the next step for Apollo internationally?
Our strategy is both organic and inorganic. We don’t stop here. Our idea is to continuously grow organically, and inorganically when the right opportunities arise. We also have collaborative efforts. You don’t have to do everything yourself as long as the brand is still in use. That is what makes a brand truly global.
What was the significance of acquiring Reifencom?
Germany is one of the largest markets in Europe. Reifencom is one of the largest distributors and retailers, so it strengthens our own distribution network. Further, it will help Apollo to be one step ahead of its competition in the largest tyre market in Europe. We hope to leverage Reifencom to drive the entry of the Apollo brand into the car tyre space and further strengthen our brand Vredestein’s distribution through both B2B and B2C channels. Also, we are working with OEMs, we are trying to expand our reach through connections, as we are OEMs to most vehicle manufacturers in India. They want a global presence and the acquisition gives us a strong presence in Europe.
Regarding acquisitions, what were the lessons learned from the Cooper setback?
The learning was that always expect the unexpected! A third party, with no locus standi in the matter, was able to stall the deal using strong-arm tactics when both buyer and seller were willing participants. This has however not prevented us to move further and beyond. Immediately, we started expanding within and outside. Hungary is a classic case. In India, we are doubling up our prestige. In Chennai, our investment will be $500-600 million in only one plant. Apart from that, $100 million will be spent on other plants. Total investment will be $600-$700 million. Close to almost €500 million are being spent in Hungary.
How would you explain your management style and the driving force behind it?
I believe in trust. When I started the company, I was like a gardener who planted the seed. I wanted to see how it could grow into a tree, which gives fruit and shade, and yet stay evergreen. The idea was to build an institution. I always look at myself as a trustee. Therefore, I must see that all stakeholders are taken care of. My own employees are my first love. I make them feel this is their company. It is by absorbing this value that I have won the world. We are fair, transparent and communicative. We give a lot of empowerment, balanced by proper corporate checks and balances.
What about your CSR initiatives?
We are not doing CSR responding to government initiatives. We started much earlier. We were working with the truck drivers in 2000 already. 70% of the trucks were owner-driven and they felt this was their own little factory. Given the difficult condition of our roads they face different challenges.
We’ve been thinking of how to help these truckers not just as CSR. We realized HIV/AIDS is a major killer and these people are working round the clock for about 30 days. When they go back to their families, they may infect their wife and kids only visiting them once a month. Today we are one of the largest operators of anti-HIV/AIDS clinics with 25 of them around the country in various trucking centers. It is one of the largest programs in India and has been awarded and recognized by international agencies.
We do CSR on a continuous basis. For example, we have 4-5 factories in the country. We look at the requirements of the communities. We try and pick up the villages, try to empower women, make them self-employed or employed in the factories. So, the design of our CSR programs is focused on understanding the local needs. The idea is to really to have an impact on our community.
How important is the American market for India?
In the long term, if you want to be a global player, it is very important and you have to have a presence in America. We have a small presence in the US market. However, right now I am focusing more on Europe. At the right time we will look at the American market.
What would be your message to investors eyeing India as a manufacturing site?
Invest in India. Not because of the low wages, but for the talent, and the huge domestic market. Come to the country with a long-term vision and you cannot go wrong. It is all about having patience, perseverance and passion.