Back to basics
Vipin Sondhi, JCB India’s MD & CEO is confident of continuing his company’s leadership position in the market. Niranjan Mudholkar met him at JCB’s headquarters in Ballabhgarh to find out what drives this confidence
JCB India sold nearly 11,000 machines in 2006 and more than 17,000 machines during 2007. But that was a different time. We would like to know the figures for the next two years – 2008 & 2009. Your projections for 2010 and 2011?
We sold 13,470 machines in 2008, while in 2009 we sold about 13,050 machines. From a net standpoint, the machine sales indicate that the two years were almost flat. And as the machine sales were flat the net revenues were flat too. However gross revenues took a dip because of the government’s stimulus package reduction in excise duty.
We plan for the future but don’t necessarily make projections. What I would say is that certainly from the last quarter of 2009, growth has started coming back. And that is something everybody across industries is looking forward to. I see a fairly longish period of growth ahead. We expect the industry to grow by 10-15%. We are market leaders and we will retain that position.
What different or new things did JCB India adopt – if at all it did – during the recession? And have you continued with the same strategies?
The answer is yes. You have to do different things in different times. We went back to basics. What are the basics in manufacturing or in any business for that matter? Management of cash is extremely important when you are going down; when the industry is de-growing and when there is a concern that the crisis could be deep and you are not sure. Management of cash basically means that you need to focus on inventories, on cost and on waste management. You need to ensure that whatever you spend is spent directly on value addition. For us, anything spent on the customer is value add. So the entire focus went directly to the customer. For this, we developed an integrated programme called PACE. It runs right across the organisation and stands for Programme for Accelerated Cost Elimination. The idea was to speed-up the process of reducing cost while ensuring that the focus on the customer was even sharper. The programme aimed at identifying wastages across the value chain as well as at the back-end and eliminate them as quickly as possible. When you engage the entire organisation into constructive small teams which are working on each element under the umbrella of PACE, you actually ensure engagement within the organisation.
Today, we are definitely out of the crisis but we have kept those systems in place. PACE continues as PACE II. Basically, we have re-launched PACE in a different environment. The engagement with people and the focus on customer remain.
During bad times, uncertainty moves to the individual level and it becomes the uncertainty of the organisation. So engagement becomes very important during these ‘what shall we do?’ times. A lot of youngsters have never been through the bad times. They have seen only growth. So it was (and is) important to engage them. That creates tremendous amount of positive energy in a time when you are actually going down. This was intense engagement and involvement for all good reasons.
Did you have any layoffs during recession?
We were very clear about one thing that the very last mechanism for reducing cost would be layoffs. The moment you do that you have added to the uncertainty. Had the crisis gone deeper and had it lasted longer than it did then may be one would have had to reach the last resort. But thankfully, we didn’t have to. The confidence at both the level of the government and the industry was very heartening. Yes, we were affected but steps were being taken to ensure that the crisis shouldn’t last long. For us at JCB, the strategy of engagement and people focus paid off.
Training has been part of this engagement and people focus. It helped us in picking up some signals and some very good ideas. And all this has enabled us in keeping up the morale and motivation.
We had started building the world’s backhoe facility more or less at a time when the global economy started going doing. We had already started construction but did not stop it even during the recessionary period. We did not have semi-constructed buildings which could have been a signal saying that we are not confident. We inaugurated the facility at a time (April 2009) when we were still not out of the recession as a country. This was a sign that we were setting up the world’s largest backhoe facility from a long-term perspective. The message was clear from us. If growth is coming back, we are ready for it. Luckily growth came back earlier than people expected. By July, there were signs of growth.
You are the largest manufacturer of construction equipment in India with every second construction machine sold in the country made by JCB. How do you view competition?
We respect competition. One needs to be aware of the competitive environment but it is essential to keep the focus on the customer. All the big players are in India today. They are extremely worthy competitors. It means we have got to work harder and think harder with the objective that the person who ultimately pays the cheques to us is satisfied with what he is getting for his money. Our aim is to deliver the best products in an extremely competitive market place.
What is it that differentiates JCB from its rivals? Technology? Services? Or something else?
It has to be a bundle of several things. The answer to this question lies in what JCB stands for. JCB may mean several things to several people but what does it stand for a customer who is willing to pay Rs20 lakh and up to Rs45 lakh for a piece of equipment? It is not a difficult question to answer. For the customer, if the equipment stops functioning, work stops and ultimately income stops. Therefore quality and reliability matter the most. And that’s what JCB stands for. We don’t stop there. We provide what is easily India’s most extensive dealer and parts & service outlet network. These outlets have doubled in the last four years*. We are speaking about several thousand experienced professionals who are ready to provide services all over India. We are continuously increasing our reach to the customers. The idea is to provide services at a place that is closer to the customer.
Coming back to the value chain, we ensure that there is strong infrastructure in place from a manufacturing perspective which is creating this product. And JCB definitely has the best manufacturing footprint both in terms of technology as well as capability.
Finally, finance companies or banks need to have confidence in the equipment and the equipment company since they are financing 80-85% of the equipment’s price. They need to be sure about us. They assess not just our front-end but also our manufacturing capabilities, vendor base and even employees. And we are proud to have the finest of professionals who are highly competent and engaged. All this in entirety stands for JCB and that’s what differentiates us from others.
If the allocations for infrastructure development, especially in power and roads construction in this year’s budget form the good element for your industry, what are the bad and ugly elements?
As an equipment manufacturer we were looking for a focus on infrastructure development. So we are happy with the allocations for infrastructure. Well, one can keep crying about other things. What we got to look at is whether there is adequate funding for infrastructure. Yes, there has been an increase of 46%. Secondly, is there facilitation across the ministries to ensure that the bottlenecks are ironed out? After all, speed and scale of infrastructure projects is only as good as the variety of bottlenecks. And I am happy that the government is very focussed about this. Sectors like the roads & highways, power, airports are good examples. The PM has in fact recently stated that our investments in infrastructure need to be doubled. This reflects that the 11th Plan document is coming to a close now and there will be an increased focus on infrastructure in the 12th plan as well. Infrastructure will receive the requisite importance. What will be important is the funding of this development and our capability as a nation to ensure that major projects are done on time and that there is a momentum. There are challenges but it is getting the required impetus and we all have to participate.
What are the key issues facing your sector? Say from taxation perspective?
Speaking from the taxation perspective, when GST – as we understand it – will be implemented, it will be a wonderful step forward. We need an integrated unified market in India. Ironically, we have signed free trade agreements with overseas regional blocks but we don’t have free trade agreements amongst our states. So we have differential VAT and it gets suddenly increased by way of a notification. This is a significant cost and it happens very suddenly. Therefore, we need a unified taxation regime which everybody understands. So taxation is definitely an issue of concern; particularly VAT and some additional taxes which are called life time taxes.
It is very strange that an excavator or a backhoe loader that is used to build infrastructure is actually classified as motor vehicle. True, the machine has an engine; it has wheels and it is driven by a human being. But it is definitely not a motor vehicle! This classification is flawed. But you cannot help if somebody wants to go by the letter rather than the spirit. You can spend a lot of energy in debating this and go to the court when the actual debate should be about how we should build the next road more efficiently.
Scarcity of skilled operators is a key issue faced by the construction industry. What is JCB doing in this regard?
When the growth happened pre-2006, we realised that for every machine we were selling, a customer needed at least two skilled operators. These are machines worth Rs20 lakh and upwards. And if one does not know how to operate a machine properly, it can hurt and damage not only people and the work being done but also the machine itself. So we thought of imparting operator training and started off with a pilot training centre in Ballabhgarh in 2006. The pre-requisites were basic – an adult holding commercial vehicle driving license and was at least tenth pass. It worked very well and we had people coming from far off places for the 30 day training course. Then, we decided to encourage our dealerships to set up operator training centres. Another business model came up when we recently signed an MoU with the Government of Punjab. Accordingly, our dealers would take up six ITIs for training. So now we have 11 training centres plus the ITIs. We have till date trained more than 15,000 operators. But this is only a three and half years old enterprise and we are going to continue with it because the demand for skilled operators will only increase. An operator trained by JCB gets a JCB certificate but is free to work anywhere. All that we do is maintain his details which can be shared with customers who require trained operators.
How much of your domestic sales is met through your production facilities in Ballabgarh and Pune? Tell us about the capacities of these two plants.
Almost 100%. What we import in terms of components is so miniscule that it is not very relevant in terms of overall percentage. Fundamentally, what we manufacture is an Indian-made product. Ballabhgarh’s capacity is 100 backhoes a day. Our capacity in Pune is 4000 machines per day but it is spread over a variety of machines.
Have you thought of introducing new products?
Last year we have introduced the Liftall, a pick n carry crane. It is completely designed and developed by our engineers. It is used in dry cargo ports and has one basic capability that none of the competitors can offer. It can load up to the fourth container while competition can load only up to the third. The customer gets a 25% advantage as far as being able to load. Apart from that it has the JCB robustness, after sales service and support. So yes, we have launched a new product and we will look for opportunities in the future as well.
You have aspired to make JCB India as the manufacturing hub for the Group’s South-East Asian operations. What has been the strategy behind this and how close are you to fulfilling it?
Geographically, India is very well located – not just in terms of South East Asia but also in terms of Middle East. Construction machines are extremely heavy and shipping them over a distance can be a hassle. So a good location is very important from an export point of view. Then, you also need world class manufacturing facilities and world class products to become a hub. We already have these in place but we also need our export markets to come up. Currently, of course, they are down. As and when these markets start growing again, we are well positioned to move our products. In fact, we have done that in the past.