"For us to be successful, our suppliers have to be self-sufficient first"

Four entrepreneurs share their journey of scaling up and going global at the Smart Enterprise Cluster Meet in Pune — Part 1

Published 7 years ago on Jul 19, 2017 10 minutes Read
Digvijay Dixit

V Keshavdev, executive editor, Outlook Business: It is my great pleasure to host the second Outlook Business Smart Enterprise Cluster Meet. For close to 10 years now, we have been covering 52 prominent industrial clusters. We have seen quite a few SMEs scale up and go global over the years. It's really been an insightful story for us to share with our readers. I hope you can share your story of scaling up and going global. So Srikrishna, how did your entrepreneurial journey start off?

Srikrishna Karkare, MD, Enpro Industries: Getting into this business was not planned, but we evolved as we got opportunities. We started off by trading some items related to the engineering industry and, over a period of time, we found that there was a need to package the products that we were trading. A lot of customers were looking for this service. So, packaged piping systems is our business where we provide value. Our application has evolved over the years in the industries where we serve.

Keshavdev: How did you stumble upon the idea of getting into it and how easy was it to scale up? Hitachi was your first client and that set the ball rolling for Enpro Industries. Could you you take us through that interesting story?

Karkare: Hitachi was our first international customer. It so happened that they quite literally walked into our factory one day. Our small plant was located next to the Thermax unit. There was a delegation from Hitachi that was keen on sourcing from low-cost countries. They were visiting Thermax to find out if they could source something from these countries. Lubrication systems were also on their list and they asked Thermax to refer them to someone who could do it. I had started my career in Thermax, so a lot of people knew me and the business that I was into. That was quite a serendipity. We encashed this opportunity well and Hitachi found in us an interesting partner to work with. But later on that relationship became harrowing for us. 

Initially, there was this gentleman called Mr. Hagiwara, who led the delegation. For reasons best known to him, he chose to work with us after interviewing the entire company — right from the vendor to me. After travelling across the country auditing each of our sub-vendors, they chose to give us an order of about Rs.17-18 lakh at that time. Our turnover then was a little over Rs.1 crore. Knowing that it's an international opportunity, we accepted the order without thinking much. At the end of six months, despite us executing it successfully, we had spent more than Rs.30 lakh on that order. So financially, it was a loss-making order. But the knowledge that we gained and the track record that we built while successfully executing the first export order was phenomenal. From then on, with that reference under our belt, we signed on many other international customers.

Keshavdev: Tushar, in your case, you took over the business under rather unfortunate circumstances

Tushar Mehendale, MD, ElectroMech: My father started the business in 1979. It was a small company primarily engaged in manufacturing cranes and supplying it to the local market — more so in the western part of India. When I completed my education in the US and returned to India, I wanted to do something on my own. Unfortunately, within three months of my return to the country, I lost my father. Since there was nobody else to look after the business, I joined the company at the age of 24. It has been an interesting journey because I had no business or manufacturing experience.

The first few years were pretty bad. I secured one of the biggest orders in my first week itself. It comprised 30% of our total turnover. At that point, we had manufactured it in record time. But the company simply refused to pick up the equipment citing some dealer and customer issue. We had executed the order within five months, but it didn't get picked up for about two-and-half years. You can imagine what happens to the working capital and the overall morale of the company. This happened way back in 2001, when the economy was also in doldrums. We fought against that big group, even though people warned me against it over the fear of being blacklisted. But I held my ground that if I did not fight, I would be in trouble. I got my money and also delivered the product. Things really moved forward thereon, and the business has grown 100x. However, those difficult days really built me up as a businessman.

Keshavdev: Being an SME, how was the struggle to extract money from a bigger firm?

Mehendale: Working capital management is the key to any business. You get some margins, but gradually, those margins become thin. So, it is more about how you focus on the operational efficiencies, how you are able to manage your working capital and increase returns on the capital employed. After that experience, we implemented a policy wherein we have the right to decide payment terms and the way we execute an order. In order to go to the market and get those payments, we have to provide that delta to the customers, which will ensure that they are happy and willing to come to us. It has taken a lot of time to reach this position. It's a continuous journey but this policy of working capital management has stood us in good stead.

Keshavdev: Vikram, your father started business in a completely different era way back in 1963. Describe the journey over the years and how did you oversee the transition when you took over?

Vikram Salunkhe, MD, Accurate Gauging & Instruments: My father presided over the business till I joined in 1988. I started very early at the age of 22. My father had very different objectives. The business was about precision gauges. The DNA of our company was that of an import substitute, because we never developed any product that was already being made in India. Obviously, the customers demanded [products of] a very high quality and it had to be established over a period of time. Nobody buys an equipment just because it has a good price. So we imporved the products by listening to our customers. From single axis measurement to two-axis measurement, and finally three-axis measuring machines, we've come a long way. We leveraged the knowledge that the company had assimilated over a period of time. We eventually positioned ourselves as a viable alternative for many import substitute products. Today, we have the finest capabilities across the globe.

At first, we did not have engineering graduates in the workforce. Some of them had only studied till 10th grade. Getting things done by diploma engineers and skilled labour helped us. But later, when it came to designing machines, we engaged some technologically experienced people from the West. Many of our products were designed with a contemporary European approach. We also had the opportunity to acquire a foreign company and move it lock, stock and barrel to India. Through that process, we learnt certain skills that we could engage in. We combined those skills with our energies and that is how the journey started.

Keshevdev: Harihow did you create a base for a supply chain in India primarily comprising SMEs?

Hariprasad Rao, regional director, Asia-Pacific Lear Corporation: We have seen different kinds of progression with the vendors. There was a time when we told our ex-employees to take our machine and be our vendor. This was between the late 90s and early 2000 when the ecosystem was not there and nobody had those machines. All the companies wanted to become competent. During that time, a good revolution was taking place in India with the automotive majors bringing in a cluster concept to develop the vendors. I think India today is in a much better position because of the fundamental work being done by some major automotive players. Companies such as Toyota and Maruti have contributed significantly to the development of this vendor base. Initially, it was a challenge but now people are willing to invest.

Keshevdev: So how many SMEs did you incubate?

Rao: At that time, we were running about four clusters and each had one 12 SMEs. So 48 to 50 SMEs were coached for over three-four years. They were not necessarily from Lear. They came in at different points of time, were put together and then there were some competing companies but they had a common cause to develop. We had some people, who were coaching some homegrown executives. It all helped in the development, and we ourselves helped because for us to be successful, our supply chain had to be successful as well. We want suppliers to be self-sufficient. We deploy a hands-on approach, since the ecosystem is developed now. About 60-70% of our suppliers come from SMEs and that is quite a significant amount.

Some of them were filtered out due to lack innovation, not in terms of design but with regard to the process. They were not able to differentiate themselves from the rest. The second factor we looked for was companies with a strong customer focus. That doesn't mean saying yes to everything that the customer demands. It is more about solving customer problems. Today, when I look at a source, I assess if the company has the capability to solve its clients' problems. The third is about variability management. We have a lot of variabilities — suppliers, machine, supply chain. We see if the company has the capability to go to the source of the variability. Do they have the capability to manage that by getting to the root of it? It is not easy to detect variability because it shows up in the organisation. Maybe it's over-capacity or inventory or attrition. The symptoms are different and it is for the management to identify the issue. If it is not able to do it, that company will fall behind.

Keshavdev: Srikrishna, in your case you said Hitachi walked in and the Japanese came and took over your entire process. Can you take us through that phase — the company hand-holding an SME and the entire incubation cycle? How did Hitachi open the doors for you to go global?

Karkare: The arrangement with Hitachi was very intense. For the first four to six months when they took us through the order, we had no idea about the quality requirements in the international market. While making the commitment, it said four months. We agreed but two months down the line, when we were supposed to be in the middle stage of manufacturing, the man from Japan turns up. He asks for the product that we were to manufacture for him. The material hadn't arrived then, so I was in a state of shock. From then on, he took over our company and asked us how we would do it. When we explained, he said that we were lying because it was never going to happen even in six months or more. That was the first time that I heard a customer tell me that it was not happening, which was partly right. It was time for us to be honest with ourselves and that has stood us in good stead. Later, Hitachi helped us through each of the processes — be it purchasing or welding, which is the most critical process. It sent welding experts, who couldn't speak English and had them stationed at our shop for two months. We got our welders trained by them, but despite a language problem, they hit off pretty well. We are very proud to say that today we have the best welders in the world. It is a skill that we developed over time.

Keshavdev: After Hitachi, was the process of securing global clients easier?

Karkare: Definitely. That opened doors for us and even with our Indian customers, we had the approach of solving problems and providing solutions. The product that we manufactured for Hitachi was lube oil systems, which is an equipment that lubricates the bearings of large rotating machineries. It's a very critical product because if it fails even for a few seconds, the large equipment that Hitachi, GE or Siemens may be manufacturing would come to a standstill. The reliability requirements are extremely high. Hitachi indeed took a very big risk with us but we lived up to the expectations.

Keshavdev: How did you de-risk and diversify your business?

Karkare: At one point, we had Hitachi and Reliance as our biggest clients. Later, we had 70% of our business with GE. However, after a year it changed its policy because there was a bubble in the market that burst. It wanted only two suppliers worldwide for a particular commodity. Back then, there was too much business from China. So, it retained one supplier from China and one from its home base in the US. Naturally, we lost 70% of our business overnight and that's when we decided to not depend on a single customer for more than 25% of our business. Till date, we have a diversified customer base of not more than 20-25 international customers and no single client contributes more than 20% to the business. 

This is the first of a two-part series. You can read part two here.