India is one of the fastest growing economies in the world. Then why did you spend money on a string of foreign acquisitions?
We went outside India because global opportunity is many times bigger than the Indian pie. Although the domestic market is growing rapidly, it represents just 2.5% of the global market. India accounts for less than 3% of the global market for power equipment. In contrast, North America and Europe account for 40% of electricity generation in the world. Even after garnering a 25% market share and the leadership position in India, we remain an insignificant player globally. Hence, we felt the need to go global. Even if we are able to obtain just 1% of the remaining 97%, the size of our global business will be bigger than the 25% share in India.

But operating margins are much better in India. Besides, you have a better bargaining power with customers in India?
Profitability in India is one of the highest in the world, but that doesn’t mean you can’t make reasonable profits in developed markets. One of the reasons our margins are better in India is because costs are lower here, but so are the prices of final products. Labour costs account for 5-6% of net sales in India, against 25-30% in Western Europe and North America. This raises the cost of production in those markets, but similar products are sold at 15-20%. So, in many ways, the two balance each other out. For many years now, our exports have been more profitable than domestic sales.

India is now an established low-cost centre for manufactured products. Didn’t the company consider this option while deciding to tap global markets?
India is a competitive place for manufacturing the kind of products we make. However, our customers, who are mainly power and energy utilities in Europe and North America, prefer to source locally. Firstly, because ‘Made in India’ is still considered inferior to European or American makes. Secondly, physical presence is needed in the market for customer acceptance. Most of our products are custom-designed and manufactured for a client for specific use. This requires constant interface with the client and life-time maintenance and assurance. Local firms are best suited to provide this. Besides, client relationship is very important in our industry. Utilities prefer to deal with firms they are familiar with.
Crompton Greaves has made four overseas acquisitions in the past four years. Our first acquisition in Belgium was mainly to establish customer relationships. This company has plants in Ireland, the US and Canada, apart from a base in Belgium. The second acquisition in Hungary helped us to establish a foothold in the East European market, which is growing fast. This also equipped us with gas-insulated sub-station technology and enabled us to manufacture up to 12-mw motors from 2-mw motors earlier.
The third acquisition in Ireland was mainly done for the technology. Microson, in Ireland, is a leading player in substation automation. The fourth acquisition in France was to benefit from the company’s customer base. These European subsidiaries have now become vehicles to tap business opportunity in Europe and North America.

But where does all this lead Crompton Greaves in the next 5-10 years? Do you have any role model in mind, say like the ABB, Siemens etc?
In the long term, we want Crompton Greaves to emerge as a technology company, just as most of our European competitors are right now. We want to provide cutting-edge technology and solutions in power and industrial automation segments, rather than being just another manufacturer of capital goods for the electrical and industrial sectors. We aim to be one of the world’s top companies in this space. Industrial automation is a weak spot in our portfolio right now, and we are looking at all options to correct this, including acquisitions.

What steps are you taking to achieve this long-term goal?
The decision to globalise was part of this vision. Thanks to acquisitions, nearly half our revenues are already accounted for by overseas markets. The next step is to consolidate and grow our European and North American businesses. Simultaneously, we are scouting for opportunities in new growth markets in Eastern Europe, West Asia, South-East Asia and Africa. We are also aggressively investing in creating new intellectual property, so that we are always at the top of the technology curve. Last year, our R&D team in India filed for 120 patents. Three years ago, this figure was zero.

But is it possible to fill the intellectual property gap with companies which have been generating technologies for over a century now?
This is a general misconception in India. None of our products are in any way technologically inferior to any of our European competitors and the same will hold true in future. Last year, we filed more international patents than many of these European giants.

What were the key challenges you faced while acquiring these firms?
The main problem when going in for overseas acquisitions is gaining the acceptance of employees and changing their mindset. Our experience is that Belgians are uncomfortable with the idea of working under an Indian parentage. In comparison, the US culture is much more open. So, it was far easier to integrate the US operations of our target companies. Such problems do exist when you go in for foreign acquisitions and the only solution is communication. People’s acceptance is most important for a successful acquisition and I believe that Indian cultural traits do help us. Indians, by nature, are more polite and open to new cultures and ideas. This makes the initial assimilation process friction-free.

What are the main problems you are facing right now?
The main problem that Crompton Greaves is facing today due to these global acquisitions is paucity of leadership. We lack a cadre of global managers who can deliver, irrespective of geographies. We are addressing the issue now, but it will take time — maybe even 10 years — for the results to show. We will bring together all the potential global leaders and train them, give them hands-on experience, and make them aware of the cultural differences in various regions, which will help us in the long run.

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