Baba N Kalyani on preparing Bharat Forge for the new world, globalisation of his company's business and tackling geo-political changes. Also what emerging Indian component makers should do to accelerate their businesses.
From the days of the licence raj to the liberalisation of the economy and now a world that's witnessing changes and adopting new technologies and solutions faster than ever before, Baba N Kalyani has seen it all. His company Bharat Forge has been a frontrunner among Indian automotive component manufacturers and has emerged as one of the few Indian companies holding high the country's flag in the global automotive world, even as it expands its presence in non-automotive sectors. Over the years, the Pune-based company has achieved the rank of the world's largest forgings manufacturer. Recent recognitions such as one of the top 10 global suppliers by Daimler AG and the Time India Global Manufacturer for the Year 2017 endorse Bharat Forge's capabilities and standing in the global arena.
The 55-year-old company has been having a successful run, with its share of challenges in between, and has established itself as a leader in many segments. However, for any company, a glorious journey does not guarantee a successful future unless it is based on future-proof strategies.
In a rapidly changing automotive world where 'disruption' has become a key word, a company of Bharat Forge's stature and size has to put solid strategies in place to sustain, and grow. A maker of hardcore iron and steel products, how is the company preparing to cater to the automotive industry which is increasingly getting digital and moving away from conventional mobility solutions and technologies? As a leading component supplier, does Bharat Forge see opportunities for itself in any of the key global megatrends of electrification or autonomous driving? Does China still beckon the company? Is protectionism in the key automotive market of the USA a concern for global business players?
Baba N Kalyani, chairman and managing director of Bharat Forge, in an exclusive and candid interview with Autocar Professional's Sumantra B Barooah, answers all of the above and talks about preparing Bharat Forge for the new world, globalisation of his company's business and tackling geo-political changes. The doyen of the Indian component industry also talks about what emerging Indian component makers should do to accelerate their businesses.
Congratulations on Bharat Forge being adjudged as the only Indian supplier in the top 10 global list of Daimler AG for 2016. This recognition may not have come easy.
First of all, it's a privilege and an honour to be supplying to Daimler. We have a relationship that is more than a decade long. We supply to Daimler in all the three continents – Europe, North America and Asia, including Japan, India and China. So I think we have done a reasonably good job in terms of our performance. I mean a very good job. You won't get nominated and get the award unless you are the best of the best in this business because it’s a very, very competitive process. We feel very honoured and elated that we were able to get an award from them.
Baba Kalyani, seen here along with the other winners of Daimler's Supplier Awards 2016. Bharat Forge was recognised for 'Supply of best quality crankshafts and front axle beams'.
Such associations also reflect, in a way, the globalisation efforts of Bharat Forge. Can you throw some light on the overall globalisation plan for Bharat Forge?
Right from 1995-1996, which was after the liberalisation led by Narasimha Rao and Manmohan Singh in this country, it was clear to us that competitive forces will increase dramatically, competition will come from everywhere – not just within the country because all the barriers were removed, doors were opened out, especially in the automotive component sector.
People talk about FDI today, but the automotive component sector has seen 100 percent FDI even from 1995. Therefore, the only way to survive was to focus on building technology and technological capability. People talk about Euro 4, Euro 6. We have been supplying Euro 6 components since the past four years to all the global OEMs. So we already have all the capabilities to make Euro 6 components.
This means you are ready to supply Bharat Stage VI components to the domestic market players, if they want it tomorrow. How did Bharat Forge build capability to produce BS VI components?
Exactly. We have built a huge amount of technological capabilities in our company and they have been built solely on our own research, our own innovation capabilities. We had to develop on our own. We have no collaboration, there's no external technology coming to us. Not only develop it but be the market leader in the business. We are the market leader in our business worldwide. That, I think, is what sums up where we have positioned ourselves. Through this process of innovation and technology development, we are seamlessly able to move into other products and our whole industrial products base which is now oil and gas, construction equipment, and mining.
Mining, ships, railways and aerospace – we are almost in every non-automotive space where you need power to be transmitted or motion to be generated. This is where you need forgings. If you want to transmit power or you want to move some things, you need forgings and we are there with our own technology, and that’s our biggest advantage. Most companies in India rely on collaboration to do something new. We only find Indian engineers and put them in the R&D centre. It's our belief in our people, their capabilities, and their collective ability to innovate and make things happen.
A culture of innovation in an organisation has to be driven from the top, along with investments. How much do you invest on an annual basis to enhance R&D and innovation strength?
Last year we invested a huge amount. We invested more than Rs 60-70 crore in R&D. We have 12 laboratories and will add another five to six more this year. We are conducting research on a wide variety of subjects – nano technology, material sciences, into new materials into electronics because all of the automotive industry will move slowly with electronics into gear technology. When you go to Euro 6, you will need gears that are able to transmit power, and at high density. All these create new opportunity for our business.
We look at anything that can create new opportunities for our business. We have just set up our turbocharger plant. We designed a turbocharger (for railways and defence applications) in-house.
Turbochargers for automobiles too?
No. I think that’s a different ballgame with very high-volume production. It would be very difficult for us to enter a game that is dominated by high-volume players because they make in millions. So there, we are largely positioning ourselves as supplier of components.
Bharat Forge is well established and strong in the Indian and the global automotive industries. But at the time when the world is changing at a rapid pace with a lot of radical new ideas coming in, how will you prepare Bharat Forge for the next 50-60 years?
Whatever we are doing now and whatever I just explained to you are the pillars of our growth for the next 15-20 years. Everything in this world will have digitalisation. Even manufacturing processes will become digitalised to a very large extent, so we are working at one level on our process and how do we digitalise our processes. The first step is Industry 4.0.
The second step is you move in terms of smart robotics, artificial intelligence, into advance CAE-related activities. We have got programmes going on in each one of these areas. You also move into virtual reality. In another two months, we will have a whole virtual reality lab that monitors, controls and trains people for all our new activities.
We are slowly moving ourselves in this digital world. That by itself is a technology process and through this technology processes comes things like sensors. So you put sensors on your parts and equipments that you are making. A whole lot of other technologies like laser-based technology, lidars and radars. We have a lab at our research centre that is working on lidars and radars. We have another group of people working on nano technology.
We are working on batteries and on emission control solutions too because this is what we need in the future. Nobody wants emissions. We want a clean environment. So we have a lab that is working on electrical power because vehicles will have a lot of electrical drives.
Will you also venture into electric powertrains for example?Yeah, we will, of course. If the market moves in that direction, then nobody is going to buy crankshafts from you! So I have to make something that drives the vehicle.
Even axles are becoming increasingly electrically controlled. So those too?
We have set up a whole lab to work in this direction.
From what you are saying, one gets a fair idea how Bharat Forge is preparing for the new automotive world. In terms of the geographical world presence, which are the key areas that you plan to focus on?
I think we look at the world as our market because you know today there is a lot of consolidation. With the consolidation, you have big OEMs or Tier 1 companies that are dominating the world market; we are suppliers to these companies so we need to be wherever they are.
We are in Europe, we have manufacturing in North America and we are manufacturing in India. We had manufacturing in China which we don’t have today but I'm sure in the future something will happen there. About Japan I don’t know because Japan is not open enough.
Our business in Europe is growing and profitable. In North America, we now have a nice plant which we will grow and look at other opportunities.
What could be the potential area/s of expansion? Would it be automotive or non-automotive?
It could be in electronics. It could be in anything The difference between automotive and non-automotive technology is shrinking very rapidly because of digitalisation. Google makes cars and so does Apple. Never thought that they were automotive companies, right?
The gap between the real world and the digital world is closing very, very fast, so branding oneself as an automotive supplier alone is not going to really work 10 years from today. You have to be a technology player. And you have to learn how do you bring digital technology to work in your own space, how do you bring in all kinds of other parts of technology which is smart robotics, artificial intelligence, sensors and data-based things to work. One doesn't even know what products will come in 10 years from today. No one can predict that.
Talking about markets, what is your view about North America and China and how do you plan to play in these markets? In China, you went there, then took some steps back but you still have some presence. China is a market which no one can ignore.
China is a very large market. In the automotive world, it is even bigger than North America – 29 million vehicles – which is 17-18 million. So it's clearly a very large market by a margin but the problem is you have to be in China to access that market. You can't access that market sitting here.
We tried to do that around 12 years ago and we were there for almost nine years but I think it's very difficult for an Indian company to do this. We have to find a different business model. The business model that we had used, which was a joint venture with an existing state-owned company, didn't work for us. Maybe it works for other people but it didn't work for us.
You know everybody has a different DNA, a different process with which you work. We have been successful in Europe, we are successful in North America, but you know China has been a challenge for us. But, I'm sure, we will overcome it in time.
In North America, how big a business do you foresee for Bharat Forge in the next 5-10 years?
It's a large economy. Let's say it's the engine of growth for the whole global economy. President Donald Trump and the new administration are looking for growth as the first priority for that economy. So, clearly, a lot of new things will happen, whether it is infrastructure of building highways, airports and building new stuff. All this will drive growth for industries, industrial equipment and trucks.
Earlier, when OEMs went in for projects they used to have projections and accordingly suppliers made their investments. That whole process has changed dramatically because market performance does not meet projections that often anymore. How do you prepare in such a scenario?
You have to look at it at a macro level. When you look at India, I firmly believe that India is going to be the fastest growing market in the world. Our GDP today stands at around $ 2 trillion. In six to seven years, it will be $4-5 trillion. In another 6 -7 years, or about 15 years from now India's GDP will be $ 10 trillion.
I may not be around 20 years from now but my children will be around. India will be the third largest superpower in the world. Irrespective of the government, irrespective of whatever is going to happen, because guys like you and me who're working pretty hard and all the younger generations who have tremendous amount of aspiration for a better living. When our prime minister talks about this, it really resonates because that is reality. That's nothing to do with politics.
A 25-year-old person, whether man or woman, has come out of college educated and has far greater aspirations than a 60-year-old. Secondly, they are far better equipped today because they are born in the digital age. We were born in the analogue age. So there is no way that they will not be able to contribute multi times more than what our generation was able to. I think that alone will drive India and India's economy.
If you look at India’s economy becoming five trillion in the next 6-7 years and if you think the government's manufacturing direction to make it 25 percent of GDP, manufacturing has to be five times more of what it is today. You have to make investments, you can't create five times new from your existing plants. The problem is what product.
So the future crystal ball gazing capability should become better?
Of course, that's the risk-reward relationship that comes with anything that you do.
Bharat Forge embarked on a make-in-India strategy much before 'Make In India' became the country's mission.
Government policies play a key role in influencing the industry's investments and growth. Do you feel India should put more efforts in drawing up clear and sustainable policies?
You are right. That used to be the case in the past but I think the way I see it, the policy has been defined by the government. They are implementing the policy, creating better structures to implement the policy. You have Niti Ayog, which is taking a larger part in implementation of the policies laid down by the prime minister and his Cabinet. You have several other agencies of the government that are beginning to do that. And what is the policy? The policy is to ‘Make in India’. It's pretty much like what everybody else is saying. Why do we have to import 70 percent of our defence needs? Start making it here. Why do we import smartphones? Start making them in India.
We lost the electronics race in the 1980s because there were some people sitting in the system who believed that we didn't need any external help to create an electronics industry. It's a fact. We missed one complete electronic industrial revolution.
A lot of lost opportunities there?
Exactly. Otherwise we had the brains, the manpower, we had the demand. That would been the most ideal industrial revolution to participate fully.
When talking about new technology, electric powertrains and autonomous driving are key megatrends. You talked about radar technology. Is that also something you are looking at? Autonomous driving has now become a very simple technology. Autonomous driving now on a highway at 120kph may be a difficult activity but to do it at 25-30kph or 40kph is not rocket science anymore. You can build a little gadget in your garage which will do that.
So I expect countries like India, where we have a lot of catching up to do with technology, a lot of these technologies will get leapfrogged into our system. We have a huge problem of urban transportation. Why do we need to continue urban transportation with the same old diesel- or gas-operated buses? That's the first thing that should become autonomously driven, to some kind of people-mover concept.
Because they operate in clearly fixed routes and fixed timelines.
Exactly, they have routes so you need a people-mover, something that seats 15, 20, 30 people and that goes at 35-40kph.
I think India will evolve its own technologies. Our needs are different, our population is different, our infrastructure is different. So we will have to evolve this, but the new technologies that are coming up will help us move there.
You say that in the global scenario, boundaries are getting blurred. But also with the geo-political scenario , there are some concerns with protectionism in various parts. Does
that bother you?
I honestly do not think that it is a concern. Protectionism overall is not a good idea. But we have been living with it. There has always been protectionism in the world. They may not be direct tariff barriers in terms of tax but there have always been indirect tax barriers. The indirect tariff barriers are far worse than the direct tax barriers. And they have been there anyway.
We have been dealing with it. I mean companies that have manufacturing all over the world are not that worried about these things because once you have a base, you can always grow it.
In the large Indian component industry with very high ambitions, there are only a few shining examples like a Bharat Forge or a Motherson Sumi which are seen as flagbearers of the country in the global automotive world. How would you rate the evolution of the component industry? What are the fundamental steps that component industry players need to take, so that we see more globally leading companies that are homegrown?
First of all, I think the Indian component industry has done very well. If I were to go back in time and look at this industry in the early 1980s, which is when really the transformation of the industry started, the industry was in dire straits. It used very low technology, very little capital, and a lot of manual and unskilled labour. From there to where it has come today is quite dramatic.
I think now it needs to take the next step because a lot of this distance has been covered by the components industry using collaborations and joint ventures as a platform. There are very few companies like us which have been able to develop their own technology and compete with the best. The component industry now needs to move in that direction because you have got a whole new set of technologies coming . The whole digital world.
Are you saying companies should invest more in developing proprietary technology?
Yes, exactly. You need to move in that direction and I think you know somewhere you need to create a convergence of the component business, the technology business, and the IT business together to create new products. Working in silos and pockets is not going to make it happen. I think one has to expand one's own mental horizon.
This exclusive interview was published in Autocar Professional's March 15, 2017 magazine issue
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