Interview with L Ganesh

Just a few days after a Rane Group company bagged the third Deming Grand Prize, the chairman of the Rane Group spoke to Sumantra Barooah on being more competitive through consolidation and better HR management as well as expanding geographically and increasing the non-automotive business pie.

Winning the Deming Grand Prize for three consecutive years is definitely a big achievement for any group. Does it also give you any extra edge from a business perspective?

From an external perspective, it definitely enhances your brand image. It is certainly a good kind of enabler when you meet potential customers. More importantly, it is the practice of TQM (Total Quality Management) at that level that helped us win this prize and thus sustain quality, cost management, productivity, motivation and that should help us get more business. Brand image helps with a new customer but with an existing customer, you have to still deliver on quality, cost, delivery which the practice of TQM helps.

Are you looking at any more consolidation after the merger of Rane Diecast with Rane (Madras)? Many players in the automotive industry are looking at consolidation to be more competitive.

We are in the transportation industry with almost 90 percent sales in the automotive sector and about 10 percent from railways, defence, marine and industrial engineering. Like Rane Diecast, we might think of doing one or two more in the future. It doesn’t make sense to have small listed companies with Rs 100 crore, Rs 200 crore sales. If there are opportunities in the future, we would like to look at that more from making them more economically viable.

We have two companies making engine valves
and that could be natural candidates. Going forward, we could think of having just one company making engine valves.

When do you see the Group crossing the billion-dollar mark?

As per our three-year plan, we should cross the billion-dollar mark in 2015-16. But it may pushed by a year since growth is likely to be very marginal this year. So we are trying to focus more on exports and increase our reach in the aftermarket to make up the domestic OEM slowdown. We have to see how things go. Exports account for 15 percent of sales and we want to increase that because we feel that the growth in India will be somewhat moderate, even in the medium term, because of certain policy initiatives not having being taken, the state of the economy and things like that.

Towards that objective, doesn’t it merit to have some overseas base?

We have offices in the Germany and the US. We are strengthening them as the first step. Recently, we added one more engineer in Germany. We are now going to add one more person in the US office. The second step is, if it makes sense and if we need to be near a customer, we might think of buying a plant or setting up a plant outside.

North America may be more attractive than Europe as it is bouncing back, perhaps faster than expected, isn’t it? You also export to the US through your JV partner TRW.

Yes. The North American market is the most attractive one. Maybe that region — either South America or nearer to that — could be, if it makes sense for us to have a manufacturing or assembly facility, we would not hesitate to do that. We export mostly to the US now.

Is India’s strong position as a low-cost base getting diluted? I understand many subsidiaries of multinational companies are gaining advantage over some Indian peers.

One advantage that new MNCs have in India is that they start off on a lean note while the older ones like ours have a historical legacy of fixed cost base, overheads etc. They are starting off with a young workforce which is not unionised. Our employee profile is much older too. We are aware of this. So what we are doing is to focus on blue and white collar productivity and we are working aggressively on productivity improvement.

New companies have an advantage over older companies. Even within our Group, some of our plants are 40 years old where the competitiveness has been eroded compared to our own plants which were set up 3-5 years ago.

We are aware that newcomers have an advantage and, therefore, we have to refresh ourselves, move to new locations and downsize old locations among other things.

Can you share examples of any such action?

This April we closed an engine valve plant set up in 1959 near the Chennai airport. That capacity is being shifted to the two-and-a-half-year-old Trichy plant and the one near Chennai and will divide the capacity between them. Rane (Madras) has a plant in Velachery and we have a three-and-a-half-year-old plant at Oragadam and we have been gradually shifting from the old plant to the new. Maybe in the next two years, we will close the Velachery plant also. We have a plant (of Kar Mobiles) in Bangalore which we intend closing down in the next 2-3 years and consolidate all that in our Tumkur plant.

That should enhance productivity, profitability. . .

Apart from blue collar, white collar costs have changed in India. It was not an issue 10 years ago and due to the supply-demand mismatch of good managers, the cost is going up now. It’s better to consolidate. So, newer plants with better productivity on the blue collar side and larger size to absorb the white collar cost. This is the direction in which we are going.

How will you utilise the assets of the old plants, especially the land?

Partly we may retain for the head office and R&D. We may dispose of the remaining.

What steps is the Rane Group taking to address the issue of mismatch in demand-supply of talent?

Two things. On the shopfloor, we do a lot of intensive training before we take a person on the shopfloor. At the Rane Brake Lining plant in Trichy, we started a training school called Gurukul. Based on some aptitude tests, we take boys and girls from high schools in that area and we put them through this Gurukul system for three months. We pay them a stipend, train them and then take them on the shopfloor. The training modules continue. So their ability to absorb TQM, to participate in quality circles and improvement suggestion schemes is quite different from a typical worker who joined us 30 years ago. It is the training that makes a
difference.

On the other side, to recruit and retain staff and engineers and management, right from recruitment, we are continuously changing our practices and trying to benchmark with the best companies. We have two schemes. We have three entry levels — for diploma holders, we have a select group of polytechnics in the Southern states where we pick them up, take them through a two-year training and then absorb them as supervisors. We have graduate engineer trainees, selected from colleges, for whom we have a one-year training programme. We also have management trainees, who are either chartered accountants, or master degree holders in various areas. We have spruced up all these three entry levels.

Then, we have a four-tier development programme. Let’s say if a youngster from college joins us and if he stays with us for the next seven years or so, they will go through at least three developmental programmes periodically. What we are trying to do is create learning opportunity so that their value also goes up. By staying with us, they go through development programmes which enhance their market value. Some of them leave. But, in today’s market condition even if 40-50 percent stay, it is a good track record.

Apart from that, we have lot of HR initiatives. We have a talent review system where the young talent across the Group is identified and recognised through all the company heads along with me and the vice-chairman. We review each candidate for promotion, rotation of job. So the top 70-80 people in the Group is constantly watched and monitored. I spend time with this group once a year at least. I spend half an hour with each of them, enquiring about how they are doing, do they seek any other challenges.

We have also joined this ‘Great place to work’ initiative where we are improving our scores. We are doing all kinds of things for better engagement with employees, trying to retain them. Attrition is a challenge still, especially in Chennai, with the kind of growth in the industry. But we are also able to retain some good talent.

There is also a view that some job shifts are triggered by lack of challenges, or even bosses!

That’s true. Sometimes that is also a reason. But in today’s market condition, I think people are in a hurry to grow.

How much savings will you generate with your consolidation plans?

What we look at is the sales generated per employee. We believe that the net sales per employee should keep increasing at a particular rate. While the topline should grow, the management staff strength should not grow at a rate anywhere close to that.

Do you have a war chest for acquisitions at the group level?

We constantly are looking at opportunities. We made a small investment in an aerospace company (in Bangalore) that is growing and showing good promise. Like that, we are looking at one or two more opportunities, mainly in the in aerospace and defence areas where we would like to invest, so that over the next 3-5 years 10 percent of our sales can come from the aerospace and defence areas. Within our auto industry, we constantly keep looking at opportunities for inorganic activities. 

Any plans of graduating some of your companies from being component suppliers of sub-assemblies?

At Rane TRW Steering Systems, we make seatbelts and airbags. TRW also has a steering investment. We are now discussing with them if all three (seatbelt, airbag and steering) can be combined into a system so that the customer will get the steering wheel with an airbag already fitted and a seatbelt system. We are just evaluating whether it makes sense to do so.

The current slowdown is the longest in living memory. Do you see any green shoots of recovery?

We don’t see any signs at all. Unless the GDP comes back to the 6+, 7 percent level, only then the truck segment, which is the worst affected, will see some movement. While interest rate is important, we believe it is only the second factor. Unless there’s a kickstart to the economy itself, we don’t see that improving. That improvement will improve sentiments which affect sales of cars, SUVs and two-wheelers. Currently, the outlook of our industry is very very grim.

The Rane Group has strong brand equity but its image perhaps is still conservative. Are you trying to change it?

Our customer base is across the country. Our customers like Maruti, Eicher or the ones in Pune know us as well as anybody else. May be in the public perception, we are known more in the South than the North.
We want to improve investor communication in our listed companies, especially the holding company, on a yearly basis. But in terms of our customers, even in the aftermarket, our brand is well known well also in the North. Perhaps, the other image which we have, which is true to some extent, is that we are conservative, our risk appetite is low!  But we are a conservative company.

Perhaps that approach may have yielded dividends in some cases?

It is a philosophy. Slow and steady and consistency is what we look at. We don’t look at saying that we want a huge topline. It is a philosophy. There’s no right or wrong.

Do you also harbour dreams of Rane becoming a global group and build the strong foundation to realise them?

We will still be a very India-based company but I see our global presence increasing, like 20-25 percent of our revenue coming from outside India in about 3-4 years. With more and more global customers like Volkswagen, Renault and Ford, that is happening. I would not like to be arrogant and say I am a global company. But I will say we will be an India-based company with a reasonable global presence.