V Keshavdev, executive editor, Outlook Business: Milind, you started off in a small garage. How much time did it take for you to scale up?
Milind Kelkar, chairman, Grind Master Machines: Our history is full of challenges and every challenge has made us stronger. I believe luck had a big role to play in that. When we built our first machine for bicycle rims (these machines used to be imported from Italy), TI Cycles from Chennai were scouting for a company that was competent enough to build such a machine in India. That’s because in those days they had a lot of restrictions on foreign exchange and also very high duties. When they came over to our factory, the length of the shopfloor was 55 ft and the machine that we wanted to build was supposed to be 75 ft long. However, we were lucky that despite our limited resources and infrastructure, they believed in us. We struggled a lot. When they saw the first casting, they didn't approve of it.
But, simultaneously, we were building a new factory that was supposed to be 110 ft long. It did not have a roof so we put a strong tarpaulin sheet above. When the team re-visited the factory, they were quite shocked. They couldn't believe that such a machine could be built by such a small team in such a small time. The guy who came over for the inspection said that the machine looked fine but wanted to consult the top management. To test our machine, they sent a truck load of rims.
Our efforts paid off and I can very proudly say that Grind Master today can boast of having an excellent machine-building team because they are able to follow rules. We are able to innovate by abiding by global standards, which allowed us to compete with the best in the world. So today, when we are competing with China, we are also competing with German and Japanese companies. Over the past five years we have garnered more than 35% of the Chinese market share for high precision tools for micro-finishing. The faith that these companies put in us is based on the results that they achieved. They have expressed that they enjoy working with our company because we are always willing to take on suggestions, criticisms and improvements. I would also like to point out that collaborations teach you a lot. I think the world has moved ahead and we have to learn from the world.
When we collaborated with an American company on technological aspects, they were amazed to see our pace and expertise in this field. When the Americans would come here, they would be scared that, today if we are teaching them the technological know-how, tomorrow they may overtake us and we will be jobless. This was the fear that we cast in the minds of the collaborator's employees. So they would make very negative remarks. But instead of taking those critical remarks in a negative way, we took it in a positive way and made it our strength by constantly improving on our machines.
Keshavdev: Sunil, what was your strategy like? You thought you would pick the small markets and then sell your products over there. So how did you make use of that opportunity?
Sunil Raithatha, CEO, Vinodrai Engineers: I feel that quality is nothing but winning the trust of the customer. If a customer has come to buy my machine, he is looking to make some profit. So my final product is not the machine. But my target is the profit that my machine will make for my customer. Understanding the customer’s needs, implementing and executing that in my machine is important. It is quite possible that the workmanship and engineering aspect of my machine may not be at par with a machine that comes from Germany. But my customers across 55 countries in the globe consider my product as value for money. Thus, we should look at quality as trust in the minds of the customer.
Keshavdev: Is it that the cost effectiveness of your machine is the biggest drive for your company?
Raithatha: Yes, of course. In this world everybody looks for value for money. As far as I have an equal amount of money in dollars from it, it could be from any country. So understanding the requirement of my customer is pivotal. I'd like to share a small anecdote here. We had built a machine that was supposed to go to Tanzania. The Indian manager from the Tanzanian company came to inspect the machines and wanted me to replace the M10 bolts with M16 bolts because of the physical strength of their African workers. I did so and they were quite happy with it. So now onwards, whenever I have an African customer, I tell them that my machine is engineered to take on the physical strength of your workers.
Apart from the engineering value, the most important aspect is understanding the requirement of your customer. I feel that we have not exploited the engineering potential of our industry enough because we restrict ourselves to the developed world alone. We miss a big part of the world where the economy is growing rapidly. We must concentrate on this big market, which doesn't always require high-end technology but demands a low grade one because they value us.
Keshavdev: Is that a proposition you also offer to MNCs?
Anil Save, MD, Atra Pharmaceuticals: In pharma, we have been supplying to MNCs all these years. The mindset is that people want quality but in pharma, the word quality is not understood as it is meant to be. What is not traceable or documented is not acceptable. That's where the whole problem lies. In fact most of the non-compliances which are there in pharma companies look very insignificant. We have tried to to create a mindset in our staff and make them realise that while the quality of the product is our paramount goal, it is the customer or the auditor who is going to buy the product. The drug authorities who come to buy should feel that what we are doing is good quality. For him to feel that, we need to document everything for him.
After the USA educated the developing countries by International Congress on Harmonization and brought them at par in terms of quality requirement, all the auditors from different countries have been coming up to the same level and many of the people are failing in audits. We have been the only lucky people who have been passing all the audits because we know what the auditor is looking at. That is why we have training programs, to say, what you mean when you make statements and what the auditor assumes. That is how we made every single individual a good auditee.
Today, because of this,we passed the PIC/S audit from Malaysia and today there is a demand for us especially in the South Asian countries. That is where we are trying to compete with the others. Today, in a short span of time, we have 28% of the average market in Vietnam, which is a big market. So we don't want to address big markets. We want to address markets which are value-based for us. If you are able to get better margins, that is a market you should look at. There are markets which give big margins but that's a big threat. If I have a one batch failure in the USA, I might as well pack my bags and head home. So we are looking at addressing markets, where we can get value and get the registration fast. That is how we operate.
Keshavdev: Milind, you said that the Chinese can decipher and make things. It doesn't take them long to understand things. How do you continue to maintain your edge there?
Kelkar: The Chinese are extremely good at anything that is mass produced and that helps them make quick money. Fortunately, our product requires a lot of process know-how and further development. We believe that even if you are a little slow, we should give enduring value to our customers by creating and generating knowledge, teaching ourselves and then passing on that knowledge to the customer. This is what the Chinese are not good at. That's where we have an egde. Otherwise, it's very difficult to compete with anything that's mass produced by the Chinese.
Keshavdev: Shriram, you said you source from a lot of countries. Do you see a difference between supplies from India and those from China in the market and what differentiates the Indians from the others?
Shriram Narayanan, president, Endress & Hauser: Wherever we have mass production items, we buy from China. The challenge of getting it from India is that the instrumentation industry is not as big as the automotive one. There are only few parts which are common across the variants of that. Generally in the instrumention industry, most of the sourcing happens not from China but Taiwan. So wherever there is mass production, more variants, we order from China; wherever we have complexity and high technology products, we look at India. To give you an example, we have sourced one part from one of the very reputed companies of Aurangabad. We were trying out that part for the first time which many people perceived to be a failure.
I think India's got a good potential specially for products which are not mass produced and where technology is involved. I think this will be more sustainable because you can easily bring the mass-produced product from Taiwan to India because the tooling and drawing is given by us. So it doesn't take much time for us to change the vendor. Where there is lot of lower risk, in terms of copying those products, only then do we go there. But where there is lot of confidentiality and trust involved, we prefer a supplier from India.
Keshavdev: Anil, did you face any challenges from the Chinese?
Save: In our case, it is more about product development and more often than not, you have to have patience. Many of us look at shortcuts; you want results and then it becomes a problem. The process of registering your products in foreign countries is a long drawn one. So we need to have three to four years of planning. We are constantly looking out for the products going out of patent. Can I be ready before the product goes out of patent? Different kinds of models are coming out in pharma. We as a small MSME have realised the need to address this now. We have identified the sectors.
Basically, if you concentrate on the entire range of pharma, you cannot do it. So we have identified cardiovascular, antidiabetic and ARVs and are concentrating on these segments. We are trying to create a niche in these segments — the products which are still only with the innovators. We are trying to see if you can have these products into areas where the patent is not there. This is the kind of market that you are looking at and that is what we are addressing. You are less likely to have competition in those markets because the products are difficult to make, you stand a better chance. Most people want products that are easily available. Let's put it frankly, we got a double layer product with both the layers having different dispersion. Very few people have it and today all over the world, we're the first in the world who developed a printable combination. This has become one of the leading cardiovascular drugs in the market today. It has been sold in a big way.
Keshavdev: Milind, in your case you have been scaling up quite fast and then you have gone ahead and taken another company. So are acquisitions and collaborations very critical for an SME to go global?
Kelkar: If you want to go global, one way is that you try to do it yourself. You start a factory overseas, in the US or South America or wherever the product market is available. Look for an opportunity where people are already working. Over the years,we have always been on the lookout for what is happening in the world generally. It is clear that there are several countries in Europe today where the economy is not doing well. People have developed technologies but their children do not want to come into that business. So there are typically five or six reasons for which companies are looking for partners. Most of these are family companies and MSMEs.
There are several companies where there is no scope for succession. They have the technology and they want to get out of it. We are on the lookout for opportunities of going and selling outside because we want to prove our mettle. So you keep looking and once you have developed some inherent traits, the person in front of you sits up and takes notice. That is how the dialogue starts. Now we have almost five collaborations with which we are working. This acquisition was done not to enter the French market because you know that the French market is very small. France is not one of the leading countries in Europe today, like Germany. But the French have substantial influence in South America. So we were looking out for companies which were selling not only in Europe but also in South America. That's a market that resembles ours. Since France would face much more competition in South America, that would gain by partnering with us.
That is how we thought we could secure an entry into the rest of the world. All said and done, India's reputation for producing high technology machines for doing critical operations is not very high. We have to clearly admit that and fight against this all the time. This type of an acquisition definitely helps us to bolster our position in the market. In another 10 years, people may or may not know this French company. But I am sure they would know Grind Master and that is the ultimate objective.
Save: In pharma, there are more opportunities for collaborations where you develop a product. An SME must try to understand his niche and core area and look at that. You can develop a product developer market and sell the brand. For example, Biocon picked up so many MSME products and brought them together. MSMEs have great opportunities where they are able to take quick decisions because in a multinational company, tomorrow, if you decide to go for a plant development, it will take me at least two-three months to start the thing because it goes through a number of layers. Here you can take a decision faster, while at the end of the day, you may not be able to come to the value that you want because most of us get satisfied very fast. We don't realise the value of this is ‘x’. We relate it with the cost and the margin that we can get. We don't realise is that we can still sell it at a very higher price, which is where we lose out. So MSMEs have to be careful and start understanding the value of their product in the market. Many times you don't know the value of it and you sell it at a low price. Then we do make some margins but it could be much bigger margins.
Keshavdev: What are the three goals that a company should be cognizant of while going global?
Raithatha: Most of the small scale industries, SMEs, over a period of time, have conditioned their mindset to operate in the Indian market only. They normally feel that exports are difficult and beyond their capability. First and foremost, they should change this kind of mindset. You should be willing to go and sell your product whenever you get a better value for it. For example, it is perceived that it is easier to sell in Calcutta than in Dubai but Dubai is economically closer. So the mindset should change. Any part of the globe where you get value for your product, you must sell it. Secondly, we are keeping ourselves too busy serving domestic and local customers. I personally feel that Indian customers are the most difficult to deal with. It is a false perception that exporting is risky. Another thing is, since you are already catering to the Indian market, you have the potential to satisfy the most difficult customers. You should have the guts to cross over the geographical boundaries and cater to the customers across the globe.
Save: If you have to survive in the pharma industry, you have to keep your eyes and ears open; know what is your market; know a competitor doing — whether he's going to create more or less margins for you. You must be aware about innovations or modifications your competitors are doing. You have to create a mindset for your people where they're not only looking at the quality of the product but are also particular about documenting it all as proof.
Kelkar: Once a small scale industry has a product and service idea that is going to sell, once an entrepreneur knows that this is going to be successful — then half the job is done. The challenge is building up an organisation that will back up his ideas. Once you have embarked upon building this organisation, then the next word never to be forgotten ever is training. It is not only for your people but also for you as an enterpreneur. So my key insights for future success would be train to innovate, train to excel, train in the system of rigour.
Narayanan: I would also like to mention that we also started out like a small company in a carpentry shop. We're successful today because we're still maintaining the same mindset. When you are small, you have lot of flexibility, your mind is very open and you are willing to learn. Gradually, along the journey somewhere, we forget this. So my advice would be, please have ego in a positive sense, which makes you look for economic growth and opportunity wherever it is possible. Don't let geographical boundaries come in your way. I still have the same mindset I had when I started off as a young entrepreneur. And I believe that's crucial to be successful.
This is the second of a two-part series. You can read part one here.