"Never take a risk you cannot walk away from"

Five entrepreneurs talk about what it takes for an SME to scale up and go global at Smart Enterprise Cluster Meet in Coimbatore – Part 2

Published 7 years ago on Aug 04, 2017 10 minutes Read

V Keshavdev, executive editor, Outlook Business: Manoj, how did you crack your first deal in the export market? How easy or tough was it? And how are you continuing to move up the value chain in exports?

Manoj Kumar Jhajharia, joint managing director, Salona Cotspin: In the 90s, India dominated the textiles industry. In those days I used to have LCs in my hand, and I could dictate terms to my buyer. Today, I can’t even think of doing that. The entire world is now a biased market. In the last five to seven years, a lot of disruption has taken place. Now, the buyer dictates the terms. But I don’t compete with countries like Bangladesh or Vietnam, I compete with my own brother in Gujarat. Technologically speaking, a lot of changes have taken place. The industry is a white elephant: you keep investing your money, but never think of taking it back. 

Keshavdev: It’s a biased market, so you need to move up the value chain for you to get the upper hand. Are you doing that in your business?

Jhajharia: Yes. We began with yarn in the 90s, now we’re into apparels which we export to Europe as well as the Gulf countries. In our case, we took a reverse direction. Instead of going from domestic to global, we migrated from the export market to the domestic market. 

Keshavdev: Hema, you have managed to bag orders from Germany, which is more of a finicky and quality-conscious kind of market. How easy it was for you to land the order? Or did they come knocking on your door?

Hemalatha Annamalai, CEO, Ampere Vehicles: We should talk about India first. India itself is a huge opportunity, since we are less than 1% electric, and consume 18 million petrol two-wheelers every year. But I think the current government is aware of this, and is taking measures to bring about change. I’m a part of the government’s central core committee that is doing electric. New business models are evolving now, and there will soon be more players in the automotive industry. Moreover, software is going to drive hardware, so it’s better to focus on technology right now.

But to answer your question, we were not even aware that such a customer from Germany even existed. A man, quite elderly, came from Germany and told us that they wanted to work with us. I asked him why, because we were only a startup and we still had a long way to go. But he had visited every major place that was involved in electric. He found us credible people do deal with, and the company wanted a nimble and flexible partner who would help them execute ideas. We also had expertise in software. We received a small order from them, which they are now testing in Germany. And if it succeeds at least for the internal mobility such as for warehouses and godowns, they will thinking of moving to electric. The market is huge for this industry, but it’s also dependent on execution, how we time the execution and prioritise.

Keshavdev: You seem to be more bullish on the fact that the government is going to be creating the market for you, in terms of its changes and initiatives. As a businessperson, is this good enough reason for you to keep pumping into your business?

Annamalai: No. We had a very painful experience with the previous government. In 2008, we were growing at 100% when the government suddenly withdrew subsidy, which led to our sales plummeting. With that in mind, we are now building a model that would not depend neither on government subsidies nor on sops. The current government, in fact, will be taking away subsidies and remove concessional duties in the next four years. They want to ensure that local engineers are hired by manufacturing companies, so there will be a push for manufacturing companies.

Keshavdev: Ramesh will have a different opinion, I think. You are not as gung-ho about the domestic market. You moved away from that and said you were happy with exports. What lead to that, and are you happy? 

Ramesh Muthuramalingam, MD, Alphacraft: It is easier to deal with the West than it is with our own people here. I have clients from Japan, Germany, Netherlands, France, England and the US. I used to have Indian customers previously, and all they looked at was pricing. You may have a complete setup capable of creating anything, and you could provide value for money. But they only wanted low price, which was very difficult, because you have a team set up and you create a quality system in your company to sustain for many years. But nobody wants to buy that. 

When I go to Germany, they ask for what is viable. If they are buying something for say 100 euros, they would expect at least 20% deduction in it since they will be spending at least 10% in procuring the goods from India. So, as long as your calculations are correct, they will be fine with them. With exports, a lot of other things are involved in the pricing besides the manufacturing cost. There is the logistics part of it, the packaging, there is variation in currency and not many SMEs can go ahead with forward contractors and hedging. Then you need to improve your own technology. The level of quality goes up in each country every year, so you need to upskill the people and upgrade. Despite all of this, your still have to keep your price at 20% lower than German price. But if you are transparent enough and if your customer has faith in you, you can discuss matters openly with them. Here, if you quote a low price they [the buyers] may ask you to give them an even lower price. So how long you can survive? 

Keshavdev: Ram, you found a niche selling in China. Apart from canvas, is there anything else you have an edge on?

SK Sundararaman, executive director, Shiva Tex Yarn: What I do in textile is a sweet spot between conventional textile and engineering-based textile: I do a mix of both. And there are few people who do this, which gives me a lot of leeway to be a little different from pure price sensitiveness. The one-time investment and innovation in technology that we do takes us a long way in getting us the price advantages. We are the largest artist canvas manufacturers in the country right now. We are very lucky, one of the largest manufacturers of artist canvas in the world was breaking its relationship with Camlin at that time. Camlin’s technology was old, whereas we had state-of-the-art equipment, which was far more advanced for this kind of production than was needed. They were impressed by our factory because of the kind of machinery we had for making canvas, and signed a contract with us. But we had no idea about the product, but they taught us. We were at the right time at the right place for canvas, which was lucky.

But the pre-condition was that we had something that nobody else had. This has been true for wherever we found success. We had something that was needed, that nobody else had. It’s not about inventing something, but about finding the opportunities from around the world, trying to bring that here, and then trying to make that connect with you. Today, the highest end of technology we work in is making biological and chemical warfare suits for the army. There are four manufacturers in the world of this, of which I am one.

Each business has a competitive advantage. I have the competitive advantage of sitting in a reasonably protected Indian market during the Make in India era. The Chinese probably have their own technological advantage, they neither sell nor do they buy. But it’s very rare that somebody would come up to you and ask you to do something together because you know about technology. You make it, you create it. What makes you different is how you mitigate the risks in the time of uncertainty between the investment and actually going for production.

Keshavdev: You have kind of grown and scaled up with just one client, and been pretty happy doing that. Is that a conscious business strategy? It has paid off for you well. Are you likely to continue with the same strategy? Also, isn’t that kind of risky?

Shanmugam: It is a risky decision, yes. The reason was that the textile is a very precarious industry. In catering to the Western market, MSMEs must understand that after globalisation, the markets were divided into two categories: the product-driven market and the market-driven products. Now, we have a global market, which has only two driving factors: quality, and value for money. So, every individual buyer is going to have a strong hammer in his hand, and he is going to try to reduce the price only – no matter how innovative or strong on the infrastructure your company is.

This is the present scenario, and we must clearly understand where we stand and accordingly equip ourselves. After globalisation, the market was again divided into categories – the static market, and the dynamic market. India falls under the static market. I will be able to hoard the product I manufacture for the next two years, and make profit in the third year by selling in the domestic market. But the Western markets are so dynamic, that the year being divided into 12 seasons with every month comprising of a season, any leftover of one month cannot be used in the ensuing one because of invisible signatures on the product line. So we have to be prepared and be able to address this.

With this in mind, through 26 years, I have made the conscious decision to retain my one German customer. Till date, I have continued with that format. But I have opened up myself now and am in search of enlisting a few customers.

Keshavdev: In this whole journey of going global and scaling up, what is the one lesson or the one thing you think an entrepreneur should focus on?

Shanmugam: Whoever decides upon venturing into whichever industry, the first and foremost thing that you need is an understanding about the basics of the market. The second is total dedication towards wherever you go, without which it would be very difficult to sustain. In this era of global competition, we mustn’t allow complacency to crop up at any stage.

Sundararaman: Entrepreneurship and growth are inherently risk-driven. The one thing that I have been following is not to take a risk that, if it doesn’t pay out, will break you. Even if you have a 99% chance of getting through and a 1% chance of losing in a way that could break your back, don’t take the risk. In the entrepreneurial journey, some grow fast while others grow slowly. So never take a risk you cannot walk away from.

Muthuramalingam: I differ from Ram here, because I came with nothing. So my life has been all about risk. It is about the dedication and having the passion to do it. You shouldn’t be pursuing something only for the sake of pursuing, or for money, or for the sake of everyday livelihood. Otherwise, it won’t last long. When it comes to retaining customers, I only say one thing: deliver. Understand the recommendation, then deliver it. Whether you have issues with time, cost or quality, if you accepted [the order], you should deliver upon it. This will keep you going, and you will find customers coming back to you again and again. And you should be reliable.

Annamalai: What keeps me going is the fact that I am thoroughly enjoying what I am doing. One thing I wanted to put across is that there is no harm in dreaming big. I have gone through extreme challenges in my venture. There are times when you are stick with cash flow, and you say that not even God can help you. This is the moment of truth, because you’re entirely on your own. When you start a venture, nobody will come and help you. What matters in such cases is: complete perseverance, determination and the guts to make it happen. For that, I think three things are very important – discipline about time, because I find that in India, people take time for granted. The second this is your ability to get things done, your ‘executionability’ or implementation know-how. Thirdly, while many people want to assume a managerial position very quickly, a team that is together is what is going to help you realise your goal. Mentors from the industry are also important, but it is up to you to choose what kind of a mentor you would need so that you are able to understand and leverage on their experience to grow faster and scale quicker.

Jhajharia: My lesson for entrepreneurs would be to have faith in your passion and to focus on your targets. All five entrepreneurs on this panel had different experiences to share, but one thing was common: their passion that keeps them driven. People may have a vision for global presence, but it is their own passion that keeps driving them towards that goal.

This is the second of a two-part series. Read the first part here