Harman starts India OE innings with Tata order

Five years ago, when Dinesh Paliwal joined Harman International as CEO, the company didn’t have any real business in India to talk about. Now, its 2015 target is to do business worth $250 million (Rs 1,382 crore). Paliwal is now chairman, president and CEO, Harman International, popularly known in India for its JBL brand of car entertainment systems. At present, his company has a business of “less than $100 million” (Rs 553 crore) in India.

It has just struck a deal with Tata Motors to develop and supply branded audio and infotainment solutions, a significant step for the Stamford, US-based company. Estimated at $250 million, the "three-and-a-half to four-year" deal begins in 2013.

The first Tata vehicle to sport Harman products will be the limited-edition Aria which will be equipped with a JBL-branded audio system. The 360-watt system will have 10 speakers with a dedicated subwoofer.

The deal will then percolate to other products which may also include the Nano. Harman may also pitch to supply to some CV models later. The company will leverage its engineering and development teams to create custom audio, navigation, and multimedia solutions for vehicles across Tata’s model lines. “Our development teams will work very closely with Tata’s engineering staff to create unique products,” says Paliwal, who has a master’s from IIT (Roorkee), in an exclusive interview with Autocar Professional. “Tata Motors will intensify the application of the infotainment and acoustic platforms developed by Harman for both local and export markets,” says P M Telang, MD – India Operations, Tata Motors.

AnandRamamoorthy, who takes over as MD on July 1, says: “Infotainment as a concept is a lot of aftermarket (currently). India will go the way of other markets. We are seeing OEM in-dash infotainment increasing. The aftermarket will reduce gradually”. India will play an important role in the company’s target of generating $1.5 billion (Rs 8,296 crore) revenue from the BRIC markets by 2015, where sales grew 32 percent during the last quarter.

Harman International has also decided to set up a manufacturing plant in Pune in a year’s time. It has inaugurated an engineering centre in Pune; it will have around 100 software application engineers. Harman already has one centre in Bangalore.

Harman is currently in talks with Mahindra& Mahindra to supply its products. For Harman International, India and China will be two major focus markets. It currently has business worth around $350 million (Rs 1,935.85 crore) in China.

The BRIC markets combined accounted for just one percent of the company’s revenue in 2007. This has grown to 17 percent now. There is a $3 billion (Rs 16,593 crore) order backlog from the BRIC markets, most of it from India and China.

Harman signed deals with China’s Geely Motors and BAIC Motors around the same time as it did with Tata. Both deals are worth over $500 million (Rs 2,765 crore). The company also doubled its staff in both countries. After taking over as CEO, Paliwal kicked off a restructuring drive, reducing costs by $450 million, $50 million over target. When asked if the slowdown in the European car industry is a concern, Paliwal strikes a confident note. “We serve Audi, BMW, Mercedes-Benz and Ferrari who are unable to meet their customers’ demand. We grew for the first nine months at 20 percent. To grow 20 percent worldwide means we must be growing much faster at home because 85 percent of our business is from our home market.” However, the 85 percent figure is set to change as Harman steps up its business in markets like India and China.

INTERVIEW WITH DINESH PALIWAL, CHAIRMAN, PRESIDENT AND CEO, HARMAN INTERNATIONAL



What is the product range you have launched based on the scalable platform?

Our very first customer was Toyota which had never placed orders outside of Japan when we got their business. We launched Toyota ‘touch-and-go’. Based on a scalable platform, this was developed in India. Fiat gave us business worth $1.6 billion for both Fiat and Chrysler. Then we got Volkswagen which is worth $1.6 billion across markets including Asia. Tata, Hyundai and Kia are also our customers.

We have got another order from BMW for $2.2 billion — the largest order ever placed in the car industry for infotainment. That would kick-in in 2014, and will go on for over three years.

How long have you been supplying to BMW?

We replaced Continental at BMW in 2007. We started shipping that system in 2009. All the models from 2009 at BMW are Harman. In 2012 comes the Next Big Thing (NBT). That is all Harman. That is going to be the best system when they launch in July. When that order comes to an end in 2014, we have been given the order for NBT-Evo (Evolution). That is $2.2 billion. So that works out to three generations of systems from BMW.

How will you tap a volume market like India without diluting the premium-ness of your brands?

I would rather come from that position than come from the perception of poor, cheap, low technology brand. Over the last five years, we have become a more innovative company than before because we have invested in R&D. About 8-10 percent of our sales revenue goes into R&D. Look around at our competitors, they spend 2-3 percent. Our aim is to build a robust pipeline of patents.

Our next challenge is how to become relevant in India. Which is why during the last five years I have announced to take $400 million permanent cost out on an annual basis. We streamlined operations, shut down inefficient ones in the UK, Germany and the United States.

We have opened seven factories in Hungary, China, Brazil and Ukraine, and opened R&D centres — two each in China and Bangalore. About 250 engineers work in Bangalore on BMW and Daimler projects. Over the last four to five years, we have undertaken reverse engineering, streamlined R&D processes, created scale, reduced SKUs and centralised purchasing. This has enabled us to lower costs by 10-15 percent from what we inherited four to five years ago. So, that allowed us to be successful at Tata Motors. Tata would not pay more than 10-15-20 percent premium.

Are you looking at further localisation?

We are cost-conscious all the time. But what drives me and what drives our labs is price performance. If I can continue to delight you with features which you haven’t thought of earlier, that’s the driving force. Cost is a given.

Is there a target you have set for the team to drive costs down further?

I did. $400 million was a permanent cost reduction target and we exceeded that. For last 10 quarters, our EBITDA has grown 220 percent CAGR, and our topline has grown 20 percent over these 10 quarters. That tells you about our cost culture.

We are leveraging countries like China, India, Brazil, Ukraine and Hungary which we didn’t earlier.

Any plans for a new brand?

We will compete in three stages in automotive — premium – high, mid and entry — where we can differentiate our brand proposition. We are not looking for another brand. We acquired a brand but didn’t keep the name. With that acquisition came two factories, a customer base, distribution channel. Assets are becoming cheaper in US and Europe. We will look for assets to acquire for technology, talent distribution and customers that it offers.

How many Indian OEMs do you supply to?

At present, Tata Motors. We hope to get more. Our global customers like Hyundai and Toyota are growing faster in some segments than pure Indian OEMs.

Do you expect the business mix between Europe and other markets to change?

Our own forecast is that by 2015, at least 25 percent of $ 6 billion in 2015 (projected) will come from BRIC nations. The Russian and Brazil markets are not very big. We have the largest patent portfolio in digital signal processing.

Are celebrities just brand ambassadors for Harman?

We have roped in A R Rahman as our brand ambassador for the next three years not only to endorse our products but optimise them for Indian customers. Incidentally, Sir Paul McCartney, who has never signed up with any company in his life, has signed up with Harman.

SUMANTRA BAROOAH