The Week Magazine - SWADESHI BARONS

SWADESHI BARONS

"MNCs want to piggyback on Indian companies" - Zodiac's Anis Noorani.
"I don't consider them to be cleverer than me"-Vicco Laboratories' P.K. Pendharkar, whose company exports ayurvedic preparations for skin and dental care worldwide. "For them dishonesty is the best policy."
"We get offers for MNC alliances every day"- Nirma's Kalpesh Patel. "We have nothing to gain from an alliance. How can an MNC teach us how to market in our own country.?"
"Collaborations are hasty efforts to sit on somebody's lap"- Uncle Chipps' Vikram Bajaj.

Time was when the standard explanation for shoddy goods or nonperformance of equipment was: 'sahib, desi mall hai!" (It's Indian stuff, Sir!). You won't hear that today. Indian roads are clogged with cars that are 'indigenised" and don't keep breaking down. Grocery shelves sag under packaged foods which (additives permitted) reproduce the western lifestyle. We even make our own toothpaste.
That's a particularly brilliant example of the success story of Indian entrepreneurship. If Vicco Laboratories' ayurvedic products sell world wide today it is because a smalltime village village businessman had the confidence to overcome consumer resistance.
"Give the customer something effective and not what he likes" must be the philosophy least calculated to bust the sales charts, but it did. Quality tells, after all. And this particular tale encapsulates the new attitude of Indian manufacturers: go it alone!
Vicco learned that the hard way when they found that the problem with their pioneering ayurvedic toothpaste was the tubes - supplied by a multinational corporation (MNC)!
Today Nirma, a world player in detergents, contemplates a merger (not international) that would hoist the firms's annual turnover to more than Rs. 1,000 crore. Uncle Chipps, with more than 70 per cent of the organised sector's potato chip sales, points to Pepsi's failure to dent the market with a cheaper product. Zodiac's Anis Noorani said some lines of the company's shirts are priced higher than foreign brands, but so what when 75 per cent of the production is exported? Marico, with a turnover of Rs 350 crore, is pushing sales of successful brands like Saffola sunflower oil in the Middle East and Bangladesh.
The rags-to-riches sagas behind these market leaders would be an eye-opener for anyone still smitten with the "craze for foreign" of yester-year.
Take Vicco Laboratories. It began as a one-man effort to exploit Indian ayurveda. Vishnu pendharkar, a smalltime village entrepreneur, started collecting rare medicinal herbs from the jungle and manufacturing powders for gums and teeth. there was no investment - he didn't have any money to invest. Later he gave his powder to Nair Dental College in Mumbai to test and assess.
Pendarkar was a man with vision. He decided to school all his seven sons for his budding enterprise. All sons were sent to train in different aspects of the business.
One was sent to the J.J. School of Arts to be trained in designing so as to design the packaging. One took engineering so that he could maintain the equipment, one read mathematics so he could look after the company accounts. One trained as a lawyer to take care of litigation, and G.K., the eldest son and chairman of the company now, was sent to do pharmacy so he could learn how to make toothpaste.
"I studied the subject for three years and learned everything except how to make a toothpaste," he recalled. "That subject was treated by the professor for exactly five minutes. When we started manufacturing toothpastes only MNCs were making toothpastes in India."
Asked how the brother go on, Pendharkar said, "I can't help it if I am the eldest and the head of the family and the company. You have to respect me. We have our talks and discussions. Where good or bad, they have to accept me. The family has to go together."
Nirma began in 1969 with Karsanbhai Patel delivering washing powder on his bicycle in packet filled in his spare time. In five years Nirma left Lever's Surf behind in western Indian sales.
All the more ironical that the image of a backyard operation clung to Nirma until just the other day. Finally the company took a leaf out of the MNC's book and went high-profile, according to executive director Patel. The advantage of having one name for all Nirmal products - soaps, shampoos and toothpaste-was that the company spent Rs 20 crore on advertising where the opposition spent Rs 200 crore.
With annual sales of 6.5 lakh tonnes of its detergent products Nirma is not only the undisputed leader in the Indian detergent market (more than 40 per cent) but also ranks as one of the world's biggest brands in this segment.
The son of a farmer from Mehsana district of north Gujarat, Karsanbhai Patel earned a B.Sc in chemistry when he was 19. For the next six years he worked as a laboratory assistant, first at the New Cotton Mills of the Lalbhai group and later in the Gujarat government's Department of Mining and Geology.
In 1969 at the age of 25 Karsanbhai set up Nirma, naming the venture after his year-old daughter Nirupama. At first Karsanbhai hawked the product door-to-door.
"At a price of Rs 3 a kg Nirma was an instant success," he recalled. "Although I couldn't cover many homes, once I had supplied the detergent the housewife became a permanent customer. " By 1972 he had built up enough brand loyalty to quit his job and dedicate himself to business full time.
"Yes, there was uncertainty," Karsanbhai reminisced. "There were precedents in my family for this kind of venture so there was always the fear of failure. but farmer from north Gujarat are known for their spirit of enterprise."
It is this spirit that drives Karsanbhai even now as he staves off the threat from the MNCs. In the battle of the washing powders tenacity will probably be his big weapon. "We will fight every inch of the way," he said.
One of Karsanbhai's strengths is human relations. He knows and interacts with all his 400 distributors personally. Thanks to this foresight Nirma now controls more than 30 per cent of its raw materials. Of the 450 trucks Nirma uses to transport its products around India on any given day the Patels own 250.
AN INTERESTING index of the current fluid thinking about joint ventures is the divergent perceptions of the consumer's reaction to the Made in India tag.
Said Zodiac's Noorani: "Initially there was a stigma attached to an Indian name. People didn't know what to expect from an Indian company."
Suresh Lulla of Qimpro Consultants said flatly, " The Indian consumers is brand conscious and attaches pride to owning a foreign brand."
"Why should a foreigner teach us about ayurveda?" objected Vicco's Pendharkar. 'We have been brainwashed that their goods are superior."
The collapse of various joint ventures, capped by Godrej's high-profile divorce from Procter and Gamble last year, left a bad taste in the mouth of Indian Industrialists. Though Godrej's Adi Godrej stonewalled when quizzed about the rupture (see accompanying story), consultants said it was a misalliance from the honeymoon four years ago. The gloss that the partnership had merely been restructured wasn't fooling anybody.
Jardin Fleming's R.Ravi listed these reasons for the break-up of outwardly auspicious joint ventures:
Mutual suspicion that your partner is cheating financially.
Failure to meet cash flow requirements by either or both partners.
Loss of control by the Indian management.
Promotion of the MNC's brands while the Indian brands languish.
The MNC just wanted an "in" to the Indian market, using the distribution network already in place.
Loss of interest by one partner due to incompatible "cultures".
The Indian partner's inability to adapt to the global scene after functioning in a protected market.
After a decent interval the MNC wants to up its stake, marginalising the Indians.
Ravi's warning to Indian industrialist contemplating tie-ups was that they should know what they are getting into, the plussess and minuses. And there should be an exit clause.
Not all the cold thinking about joint ventures stemmed from disillusionment. Some if it reflected the confidence of successful Indian enterprises riding high on burgeoning sales. From apologetics these gung-ho companies were going on the offensive.
When there was blind tasting at an international seminar nobody could believe that Uncle Chipps potato crisps were Indian, admitted Vikram Bajaj. He attributed the company's triumphs to putting quality first, constant innovation and aggressive marketing.
He said company personnel had travelled abroad and they "know what international quality is". Uncle Chipps introduced the zip lock on packets, which incorporate triple laminate to defeat the Indian weather. Foreign companies get by with single-layer packaging. They use cold storage potatoes whereas Uncle Chipps uses fresh ones, thanks to the availability."
"We were forced to change, provoked by our environment," was Bajaj's upbeat way of putting: turning a disadvantage to advantage. "That 's why our chips taste so fresh."
He said when Uncle Chipps entered that game there were 25 brands competing for the Rs 50-crore market and "it was bloodbath". Pepsi's Ruffles had managed to wipe out indigenous brands like Binny's but their bid to undercut Uncle Chipps failed. He said price wars weren't worth fighting. As to distribution, what could an MNC teach Indians about it, when "every paanwala is also our distributor"?
More and more industrialist s were realising that "Indian" is not a synonym for "second-rate". Technology can be bought and skills hired, after all: "When we felt we were lacking in technology we flew down an expert," as Bajaj put it.
Vicco's persistence with uniquely Indian products holds a moral for more timourous entrepreneurs. Lately an Italian buyer who showed interest in Vicco tooth powder lamented that no Erupean would clean his teeth with his fingers. Pendharkar told him a toothbrush was much more unhygienic because it lay about the bathroom collecting bacteria. The Italian bought 25,000 powders for starters.
When Harsh Mariwala joined Bombay Oil in 1971 he set out to make it a consumer products company, not just a wholesaler of vegetable oils. Now three of Marico's six brands-Saffola, Parachute and Revive-are market leaders over the competition of the formidable Hindustan Lever.
Mariwals's philosophy: "The biggest mistake [Indian] companies make is to see an alliance [joint venture] as an end itself instead of a means to an end. A company must understand what the gaps [in its setup] are and whether they can be filled by a joint venture."
Perhaps Noorani had got the MNCs' number when he said: "They have vague ideas about India, a land full of natives which is waiting to be captured. They have misconceptions about the market size and expect large volumes. They want to piggyback and enter the market and later cut loose and do it on their own."
Said Jardin Fleming's Ravi: "Companies like Whirpool and Sony are finding it difficult to make money in India. The logistics here are different. There are several Indian companies who are withstanding the MNC onslaught. Initially people thought they are big MNCs with big funds so they can kill the market. The logistics here are different. There are several Indian companies who are withstanding the MNC onslaught. Initially people thought they are big MNCs with big funds so they can kill the market. The market is too sharp to get killed."
Qimpro's Lulla said: "By continuously improving and innovating you can maintain leadership. If a joint venture is bringing in the technology or massive employment then I can see a justification for it. The alliance must improve process capability and bring out a world-class product."

INTERVIEW : ADI GODREJ

We didn't quarrel

WHEN MIT graduate Adi Godrej decided to join hands with Procter and Gamble the corporate world thought the savvy industrialist-socialite had struck another golden deal. But hardly for years later the marriage was on the rocks. When the high profile alliance collapsed it was a blow to the joint venture concept. In this interview Adi Godrej makes light of the estrangement.

QUESTION: What ails multinational joint ventures in India?
I do not think there is any major ailment with MNC joint ventures in India. There will always be some that fail, some that succeed and some that are restructured. This is a natural process that takes place all over the world.

Are there attitudinal and cultural problems that lead to the friction?
There are certainly. The degree of such problems varies with individual partners. A major problem is frequent change of personnel at all hierarchical levels in multinationals.

Are the fears of economic imperialism and colonialism among Indian companies justified?
I do not think there should be any fear. Indians are capable of holding their own.

Do you have any regrets after the breakup of Godrej and Procter & Gamble?
We have no regrets at the restructuring of our alliance with P&G. In retrospect we feel the original alliance made sense. The restructure under the present conditions also makes sense.

Has this experience made you bitter about MNCs and uneasy about future alliances?
No. The Godrej group has several MNC partners. I am sure the Godrej group will have further MNC alliances in the future, too.

It is believed that most of the time Indian companies are at a disadvantage because the MNCs are only out to enter the market via an Indian company. Do you agree?
I do not think Indian companies are at a disadvantage unless the terms of agreement are unfavourable. Indian industrialist, lawyers and accountants are quite capable of ensuring that the Indian interests in joint ventures are taken care of. It is only natural that MNCs want to tie up with Indian partners to enter the market. Indian companies should also understand that such alliances need not be long-lived. The important thing is that Indian companies need to protect their long-term interest before entering into alliances with MNCs.

What went wrong with your alliance with P&G?
Nothing much. It is just that both sides felt that a suitable restructuring would be in the mutual interest. We still continue our alliance but in a different manner.

What are your future plans?
In the toilet soap business we plan to increase the sales and profit of our toilet soap brands, especially that of Cinthol, which at Rs 200 crore is one of the largest fast-moving brands in the country.

SEJAL SHAH