When we got to Siemens for our first site visit, I asked the managing director, “What does it mean to be a German-based company in India, as opposed to an American-based one?” He assured me that in the next two hours, he’d answer the question.
And he did. As it turned out, I had asked the wrong question. The right question, I think, was one I should have been asking everywhere we went—because it has been the one our host companies have been answering—“what does it mean to be a world class company operating in India?” The short answer, for those of you who might not have the patience to labor to the end, is simple: world class quality at affordable prices. In fact, Siemens has an acronym that summed up much of what we had heard: SMART. S stands for simple, basic; m for maintenance free; a for affordable; r for robust; and t for timely. Much of the acronym comes from what he believes are the lessons of the Indian market, where the effort to reach the top 2% has not been a sustainable strategy for most companies. The goal is now to reach the bottom of the pyramid, the 70% of the Indian population (and at least that in emerging countries) that are not yet middle class (defined in India as making more than $6,000, which, he assured us, buys a lot more than $6,000 would in the United States.
He took as an example of the SMART philosophy the Tata Nano, the car designed to cost under $2,000. The goal was not cost reduction as much as it was cost management—the Tata company identified a niche between the cheapest 4 wheeler ($4,000) and the average 2 wheeler ($1,700), and worked backward from the target price to design the car. When the director talked with VW executives on a trip to Siemens headquarters in Germany, the VW executives said they would never build a car without airbags; the Siemens manager point out that studies indicated Indians felt they did not need airbags. There’s been a lot of discussion in the press about the Nano, because the car show is going on in Delhi right now. The problem has been low sales (you need volume to keep the costs low) partly because of the politics of a democracy. The farmers in the original factory site blocked Tata from building the plant; the state of Gujarat has a pro-business governor who welcomed the company. In addition, Ratan Tata admitted that the company’s marketing had positioned the car as a car for the poor, rather than as an affordable car. I saw one today, and it is a reasonably attractive model; a version is being upgraded to meet US.. standards for export to the United States. My own jaundiced guess is that you can put more people on a two wheeler than in a small car, but the principle of basic, affordable and quality is a theme not just from Tata and Siemens and Caterpillar, but from consumer goods companies as well. There’s an advertisement for a $35 dollar tablet. It has not yet debuted in retail, but you can preorder online, which we discovered when we went to a store to try to buy one.
We learned a lot about the Indian economy and Siemens. Salaries are 1/3 those of China for skilled labor, and 1/24th those in the United States, for instance, and engineer salaries a third those in China and 1/12th those in the United States. Siemens has designed its Indian strategy around 4 perceived market megatrends: infrastructure in cities (logistics and transportation), aging demographics plus longer life expectancy (healthcare), climate change (an environmental portfolio to reduce carbon footprint—20 of the company’s 85 billion in revenue is from renewable resources; Siemens wants to double that in 4 years ), and globalization (moving production closer to customers).
The answer to what is a German company came when he described the slow process of decision-making and the conversion to a SMART philosophy. Part of the challenge of this company is the size of its German component and the nature of German unions. 115,000 employees in Germany; 100,000 in the rest of Europe (some of them in factories ”outsourced” from Germany to the lower cost Eastern European countries, over the strenuous objections of German unions, which sit on the board of directors of Siemens); 81,000 in the U.S. and 60,000 in Asia.
It is an interesting company in its emphasis on research as well, spending 5.3% of its revenue on R&D, with almost 28,000 researchers in 30 countries. It holds over 50,000 patents, the most in Europe, third most in Germany, and ninth most in the United States. As the director pointed out, though, if you can survive in India—with its variety of language, ethnic groups, chaotic democracy, religions, languages, size, poor infrastructure, etc., you can survive anywhere. It is certainly a different challenge than China, but part of the challenges in India, as Indians remind you, are from the inefficiency of democracy!
The other company we visited was GlaxoSmithKlein, another company with a long history in India (Siemens helped build the London-Calcutta telegraph line in 1867); its headquarters are in London, but one form or another entered India in 1919, and began manufacturing in 1947. The managing director had things to say that resembled most of what we’d heard elsewhere: the opportunity in India (in the pharmaceutical industry), and the challenges—advertising is illegal for drugs (wonder who sponsors the evening news), 67% of the population lives in villages or rural areas with less than 10,000 people, with only .59 doctors per thousand people, versus the 2.25 world average, and only 60% of India’s population having access to modern medicine. Indian companies are competitive in branded generics—with 89 variants of the Lipitor model, and with price less than 5% of the costs in the United States. He described the market as value driven (i.e., price). The Indian subsidiary manufactures about half of its own, and outsources the rest. It does no R&D, with width (185 products) rather than depth, “selling” to doctors (getting them to prescribe) rather than to the ultimate customers. Ethically, the company follows either the GSK code, or local codes, whichever is the more stringent. What I found most interesting (and it is part of the India Way, I believe), the company plows 20% of profits to build local health care facilities!
And to think, I’d spent all these years marveling at China’s growth, which is indeed a sight to behold. But I do agree Western corporations can learn from South Asia, as well as East Asia—especially if they want to maintain status as world class.
Incidentally, I discovered one of those connections between China and India at the Prince of Wales museum. In the Bombay dockyards, the British built the HMS Minden, which in 1842 received the Chinese plenipotentiaries who negotiated the end of the Opium War in the Treaty of Nanking. That treaty, which opened five treaty ports to British economic penetration, including Shanghai, has been denounced by the Chinese as the beginning of the “century of humiliation.” It was one of Bombay’s famous sons, Mr. Sassoon, who went through that open door to build an empire based on opium. One monument to his wealth is known today as the Peace Hotel, but in the glory days of the Foreign Settlement in Shanghai, it was the Sassoon Hotel on the bund.