Made in India, shipped to China, Thailand

“Trial production of parts has begun for the global platform cars scheduled to debut in China and Thailand next year. The tests have been very successful so far,” Mr Kiminobu Tokuyama, Managing Director and CEO, Nissan Motor India, told Business Line.

It is from the same platform that India will see the rollout of a hatchback, the revamped Micra whose production will be shifted from the UK, in mid-2010.

This will coincide with the launch of cars from the same platform in China and Thailand.

Global platform

The common global platform strategy is part of Nissan’s endeavour to produce a host of cars, be it hatchbacks or sedans, across five countries. Thus far, India, China and Thailand have been identified as key manufacturing locations. “We still have not taken a decision on the other two countries,” Mr Tokuyama said.

Experts, however, believe that there is a good chance of Russia and Brazil qualifying, keeping in line the positive outlook for BRIC (Brazil, Russia, India and China) economies in the coming years.

For instance, Toyota and Honda have, like Nissan, drawn similar big plans for a global platform in the BRIC nations with India tipped to be the launch pad when their cars debut in two to three years.

From Nissan’s point of view, India is a favoured destination for sourcing given the high quality of the vendor base coupled with an effective costing structure.

There are 94 suppliers associated with the Nissan project and more could join the list as the levels of localisation grow in the coming years.

The Japanese automaker has targeted production of one million cars across these five countries, though no specific timeframe has been finalised yet. “India is an important part of the overall strategy and this can be borne by the fact that it has seen the single largest investment from Nissan in 2009, of the overall $3.5 billion earmarked by the company globally,” Mr Tokuyama said.

“We are very proud of our manufacturing plant in Chennai and do believe that India has lots to offer in terms of its quality and efficient manpower. From Nissan’s perspective, it is a win-win business model,” he added.

Vehicle strategy

The vehicle strategy for the country will involve a mix of direct imports and locally produced cars. Following the launch of the new-look Micra in mid-2010, a sedan will follow a year later to be succeeded by “yet another model.”

Nissan has also planned a second car platform for India though work is largely at an exploratory stage right now. “We are carrying out preliminary market research and there is still some way to go. For the moment, we are completely focused on the Micra and building our market share,” Mr Tokuyama said.

While sourcing of parts will be a key part of its strategy, Nissan will also export fully built-up cars from India. These could well head out to Europe (where fuel-efficient cars are now sought after), West Asia and even South Africa which is gradually emerging a favourite for Indian automakers.

However, Mr Tokuyama declined to get into the specifics and confined himself to the fact that numbers would go up from 110,000 units to 180,000 units within two-three years of production ramping up in Chennai.

Nissan’s global ally, Renault had also planned a separate production line in the plant but froze investments following the global slowdown. The French automaker is now likely to use the Nissan platform and produce its own models though no decision has been taken on the matter.

Kiri Dyes MAy acquire DYSTAR

Ahmedabad-based Kiri Dyes and Chemicals (KDCL) is in advanced stages of negotiation for acquiring the Germany-based DyStar Group, the global market leader for dyes and textile solutions that filed for insolvency a couple of months earlier for some of its subsidiaries.

The insolvency filing included DyStar’s sites in Frankfurt, Leverkusen, Brunsbuttel, Geretsried, and Ludwigshafen, according to reports.

“The deal size is estimated to be about ¤100-125 million (Rs 698-873 crore), including the liabilities,” said sources privy to the development. Kiri Dyes has got in a consortium of State Bank of India, Bank of India, Exim Bank and Corporation Bank for evaluation of the deal and has given them the acquisition financing proposal. The deal is expected to be complete by the end of this year.

The BSE-listed company has already raised Rs 150 crore through qualified institutional placements. The company plans to raise the balance amount required for acquisition through a mix of equity and funding through a special purpose vehicle, said sources.

DyStar clocked sales of ¤800 million (Rs 5,440 crore) in the 2008 calendar year. Currently owned by Platinum Equity LLP, DyStar has the parentage of global chemical majors such as Bayer, Mitsubishi Kasei, BASF, Mitsui and Zeneca.

Platinum is exploring strategic alternatives for DyStar, including total sell-off due to growing liabilities, sources said.

Kiri Dyes expressed its intent to acquire Dystar and has signed a memorandum of understanding with Platinum Equity Advisors to this effect in September, sources further said.

Kiri Dyes has also drawn up a restructuring plan for Dystar Group which includes shifting some operations from Germany to the low-cost production base in India. Also, the company has proposed to relocate the headquarters of DyStar from Germany to Singapore.

A top official of Kiri Dyes refused to talk on the matter.

The acquisition, if it materialises, will put Kiri Dyes in the league of integrated textile chemical majors in the world, with over $1 billion turnover, industry sources said. In July this year, Kiri Dyes and China’s Zhejiang Lonsen Group set up India’s largest dye and dyestuff manufacturing facility at Padra near Vadodara. Both players floated a 60:40 joint venture company called Lonsen-Kiri Chemical Industries Ltd to put up a 50,000 tonnes per annum unit, which became operational this year.

The global dyes and intermediates market is estimated at $23 billion and is expected to grow at two per cent per annum. China ranks sixth globally in terms of exports, while India is 16th. The recent withdrawal of tax incentive to dye/dyestuff exporters in China has impacted dyestuff exports from China and created an opportunity for India, industry watchers feel.

L&T looks to outsource power equipment manufacture

With orders for boilers and turbines worth over Rs 25,000 crore on hand, L&T-MHI is scouting for opportunities to outsource.

Officials of L&T have been visiting facilities of domestic boiler manufacturing companies to ascertain if some parts of the equipment can be made there.

Last week, they were in Tiruchi, a fabrication hub where a number of BHEL's ancillaries have surplus capacity. Sources told Business Line that L&T's officials visited six units – Cethar Vessels, GB Engineering, Veesons, Jayram Engineering, Athreya and Emperor Engineering.

“Yes, they came to us,” Mr K. Subburaj, Chairman and Managing Director, Cethar Vessels, said on Monday. “We told them that we are in a position to manufacture boilers up to 2,000 MW of capacity a year.”

The Rs 175-crore Veesons has told L&T it would be able to supply pressure parts (headers, coils and piping) up to 200 tonnes a month.

“Larger units such as Cethar, GB and Veesons have surplus capacity that could be used to service customers like L&T,” Mr B. Pattabhiraman, Managing Director, GB Engineering, said. In 2007, Larsen & Toubro Ltd joined hands with Mitsubishi Heavy Industry of Japan to form two joint ventures – one for producing boilers and the other for turbines. The production facilities are coming up at Hazira, Gujarat. It is learnt that the factories will be production-ready in 2011.

L&T-MHI has secured several orders, which, at a conservative estimate, are worth at least Rs 25,000 crore. The latest order L&T bagged is for a 2x660 MW supercritical unit at Rajpura in Punjab. L&T will form a company to put up the project, which will operate as an independent power producer.

While L&T is yet to announce the order public, a senior official of Punjab State Electricity Board confirmed to Business Line that L&T quoted the least – Rs 2.93 a unit – in the tariff-based bidding project. The boiler and turbine-generator will be supplied by L&T-MHI.

With this, L&T has won orders for the supply of eight sets of supercritical boilers and turbines of 660 MW, across three projects (see table). In addition, it has orders for two turbines of 800 MW, which incidentally, was the first order bagged by L&T-MHI.

It is learnt that L&T-MHI is close to securing another order in Uttar Pradesh for two BTG sets of 660 MW.

With all this, L&T-MHI has the most number of orders for supercritical boilers and turbines – all secured in the last three years.

A spokesman of L&T told Business Line that the lack of manufacturing capacity is of no consequence because the equipment “can come from anywhere”, including Japan.

Japanese car makers to source more components locally

A view of an auto component unit

Japanese car makers such as Maruti, Toyota and Honda are working to help their suppliers increase the localisation content in components to mitigate the increasing cost of imports. Apart from engine and safety related components such as air bags, many of these companies also import a significant amount of steel.

Some of them are also changing their export currency so as to suffer lower foreign exchange losses.

Maruti Suzuki has said that it will buy more components locally to offset any adverse impact of foreign currency fluctuations. “Of the 22 per cent components that we import as a value of our net sales, 12 per cent is imported by us and the remaining by our suppliers. So, we will work with our vendors in localising those components imported by them,” explained Mr Ajay Seth, Chief Financial Officer, Maruti Suzuki India. However, the company does not foresee any major shift in its sourcing pattern for steel as certain grades of steel for cars are not available in quantity and quality in the domestic market.

While till now, the company incurred losses on account of the dollar-rupee fluctuation, from this year, with its exports mainly to Europe, it will have an advantage. “Exports will now be in euro. So, we would have a better position moving forward,” he told Business Line.

Toyota Kirloskar Motor’s Deputy Managing Director, Mr Hiroshi Nakagawa, said, “Currently, Indian currency is weak. Japanese yen is strong. Our counter measure is very clear. We would like to increase the localisation in our cars this year.” Both Honda and Toyota have 50-75 per cent of parts sourced locally while the balance is imported.

A spokesperson for Honda said its import costs had risen by 30 per cent in the past eight months with the rupee depreciating vis-À-vis dollar by 16 per cent and the yen strengthening against the dollar by 10.5 per cent. European car companies seem to be less impacted as the volatility in the rupee against the euro has not been sharp.

“While we do have a strong localisation plan for our models, we are less impacted due to our hedging policy and a relatively lesser fluctuation in rupee vis-a-vis the euro,” said Mr Ashutosh Dixit, GM, Sales, Skoda India.

‘We are looking at categories where we can make a difference’

Vinita Bali, Britannia Industries Ltd’s Managing Director, is on a whirlwind trip to Chennai. She’s in the city to participate in the Foodpro as well as launch Britannia’s new milk drink for children, ActiMind. Bali is gung-ho on the growth of the dairy business and says Actimind is the first in a pipeline of products planned in dairy. Post launch, Bali, a former worldwide marketing director of the Coca-Cola Co, who joined Britannia a little over four years ago, spoke to Brand Line on a variety of issues: the company’s strategy for biscuits to maintain its one-third share of the organised biscuits market, consumer trends and insights driving the company, spiralling commodity prices and its small pack strategy. Excerpts:

You’ve just launched a new brand, ActiMind, a milk drink for kids. Does this new product launch signal that you’re getting aggressive in the milk market?

Dairy is a business that in the last three years has doubled for us. We are looking at a 20-22 per cent growth; it’s tracking to be a Rs 200-crore-plus business. So far, dairy was dominated by our presence in cheese, where we have a 47 per cent share of the market. We made a lot of innovations — we brought in cheese spreads and flavoured cheese cubes apart from low-fat cheese. What we have done with this portfolio is to look at how to differentiate or add more value.

You had a presence in the liquid milk market as well earlier?

We as a company are in the business of brands. We buy a lot of wheat but don’t sell wheat flour, we sell biscuits. We don’t want to be in the business of selling just liquid milk, which is something the company had done earlier, because there is no value addition. There is nothing that we bring to milk that anybody else can’t. So, when we looked at value-added products, we brought in branded dahi. I would say there’s a time in the evolution of categories when consumers make the switch from having to make it at home to going out and buying it. The analogy I would use is that 15-20 years ago, people wouldn’t want to pay for water but today we buy branded water! Consumers today are saying they don’t need to do all that their mothers or grandmothers did at home.

Four-and-a-half years ago when I joined Britannia we made it clear that we were in the business of creating brands that offer an attractive value proposition to the consumer. So we are not about selling a commodity.

As we build our portfolio, we are looking at different categories where we can make a difference. If you look at cheese, for instance, we have low-fat cheese under the Slimz range which has 33 per cent less fat. We are creating this whole proposition called Slimz which takes into account the fact that eating healthy is about eating less fat. In biscuits, for example, we have added micro-nutrients and today, 50 per cent of everything we sell in bakery is fortified.

Is ActiMind the first of many such products in the pipeline for you?

We are looking at several products; this is the first to come to market. The quantity of essential nutrition in macro nutrients is not enough, so nutrient fortification is what a lot of developing economies have done to improve the overall wholesomeness and value of food. We developed ActiMind keeping in mind micro nutrients that are known to improve mental agility. For example, Vitamin B is essential for the brain to utilise the energy of glucose. Vegetarian food has very little choline and iodine. So, the need for micro nutrients is higher in a country like ours. We wanted ActiMind to be literally a one shot drink. The other big advantage is that it has no preservatives, it has a shelf life of six months, and is an ambient beverage so it could be put in kids’ lunch boxes (though it tastes better when cold – but that is a personal preference).

What is the kind of business opportunity you are looking at for this?

It’s a new market we are pioneering. I don’t know the size of the market, it’s not milk but in consumption terms, will compete with milk, it’s not juice but will compete with juice, it’s not a malted food drink, but it could compete with them. It’s a completely new concept, nothing like it exists in the market. We’re calling it a milk-based health drink. To describe it … how do you describe a Coke, it’s unique to itself and it’s a beverage. I would call this a health beverage. The investment has been significant … in crores (of rupees).

Do you see the contribution of non-biscuit brands increasing share?

Of course, that business is growing even faster than biscuits. Four years ago, the non-biscuit portfolio was hardly Rs 250 crore. Today, non-biscuit portfolio is Rs 600-plus crore.

You’ve also squeezed out a huge amount of costs from the system?

In the last four years, we’ve taken Rs 180 crore out of the system. There’s been a lot of wastage reduction, a new manufacturing footprint … there’s not one magic elixir, but a whole host of things that we did. On the revenue side, all the new packs we have launched have different margins by channel and geography. We therefore manage a portfolio that includes a diversity of brands, packs, channels and geographies. We don’t make the same money on our brands everywhere.

What about the competition that is hurtling at you from all sides, not just the biscuit brands?

Just like we are encroaching on their territories they are encroaching on ours. That categories are morphing is not a new phenomenon at all. As consumers move from fried to healthy products, biscuits present a good option as they are more healthy, are baked and not fried. Also, on the other hand, the fact that we have removed trans fats works in our favour. We have created a Rs 300-crore opportunity in personal consumption packs by converting those to an impulse purchase format.

What about Britannia’s Daily Bread business, it’s still making losses?

We have consolidated the business in Bangalore and it’s breaking even. We will go slow and steady in growing the business. We have about eight company-owned outlets, 3-4 franchises and we are also present in some modern trade outlets. In Hyderabad, we are working on a franchisee option.

You have withstood cost pressures and maintained your margins. How?

To put it differently, in a very tough environment, we have maintained operating margins and generated Rs 250 crore of operating cash flow in the first half. On the flip side, I wish we didn’t have to deal with the spiralling cost of commodities. Take sugar, last year it was about Rs 14.50 per kg, now it is Rs 32 per kg.

You are importing raw sugar yourselves now?

The government allowed imports only six weeks ago, so we are importing now. There is no sugar available. India produces 21-22 million tonnes of sugar; this year (expected) 16 million tonnes and we have eaten into our opening stock. The government realised that the only way to restore sanity was to allow import of sugar.

What’s new in your core business of biscuits?

The focus that we brought to what I would call the functional aspects of our business: removing what’s not good for you and adding what is! And, we have not done that on the basis of some regulation, we decided that we were going to remove trans fats and ours are the only biscuits that have no trans fats; we removed 10,000 tonnes of trans fats; we have also fortified our brands with micro-nutrients — iron in the case of Tiger. We are also looking at new opportunities. If you look at Nutri Choice 5 Grain, it has complex carbs such as oats and ragi, a dash of honey as well. We just launched a cracker with ajwain and jeera, which is good for digestion.

The other thing in biscuits is that we are looking at consumption opportunities out of home. We asked ourselves the question: if I am a teenager would I eat something that my mother buys as a grocery item … what would we have to do if we wanted to make biscuits an impulse purchase, like chocolate … and that insight led us to some very interesting things. We launched the four-biscuit pack of Bourbon, for Rs 5; it looks like chocolate, has a chocolatey taste as that’s what Bourbon is all about, and that’s what we call a personal consumption pack, which you can carry along with you. That’s tracking to be a Rs 250-300 crore opportunity for us.

‘Easy to be a good agency, harder to be a great one'

Chris Thomas, Chairman & CEO, BBDO Asia

Chris Thomas, Chairman & CEO, BBDO Asia, was in Mumbai recently to share the findings of a global study carried out by BBDO and its digital arm, Proximity, in 15 markets across the world to assess global attitudes to the recession and the recovery of the global economy. According to him, Indians have coped better with the economic challenges posed by the recession compared with the rest of the world . “This offers opportunities for brands to engage in a more meaningful way and also highlights the increasing importance of community, causes and word of mouth, which are particularly relevant in the Indian market.''

On his third visit to India, Thomas outlined through the global study on ‘what goes up and goes down' the prevailing economic scenario. In a freewheeling interview with BrandLine, apart from discussing the global study he also speaks on what BBDO India has been doing in India since it set up shop in the midst of the recession and what lies ahead for the youngest Omnicom agency in the country.

It has been 22 months since BBDO India came into existence. Considering the agency went through the pangs of the recession, how difficult was it to set up the Indian operations and bag clients?

Some of the best agencies in the world have been set up in the grip of recession. We didn't plan for it - but it hasn't slowed our commitment or progress. When clients are trying to do more for less then creativity is at a premium. And that is always BBDO's focus.

Has global alignment of clients helped the Indian agency gain accounts in the Indian market? What about Pepsi and its brands like 7 Up and Nimbooz? Is it part of a global realignment or are they India-specific businesses?

Global relationships help open doors. But if you can't deliver great work and the resources required the doors slam shut. The ideas that we have developed for 7 Up - Mood Ko Do Lemon Ka Lift - and Nimbooz - Ekdum Asli Indian - are uniquely Indian ideas. The benefit of the network is cross-pollination of ideas on the brand across the world.

With the other joint venture with RK Swamy existing, how have you differentiated the two BBDO agencies in the Indian market? Will it get difficult to pitch for new accounts when there already is an RK Swamy BBDO existing?

The Indian market is growing rapidly. Having two flavours of BBDO in India will allow us to grow share. The two agencies are defined by their people, their clients and their work. On occasion we will compete, on occasion we will collaborate.

Being the youngest agency in the Omnicom group, what are the challenges BBDO India has faced in the Indian market so far? With recession retreating and ad spends going up, how is the Indian advertising industry looking up for new agencies like yourself?

The market is dynamic and growing. There are talented people and a belief in creativity. Our task is to make sure we have an unfair share of that talent and that our work is setting the industry agenda. How we engage with consumers is rapidly changing all over the world - and that is just as true here. I believe we need simple, powerful brand building ideas. Then those ideas must become the content engines that drive conversations with and participation from consumers. Our idea for Quaker, to “make India heart-healthy”, is changing the dialogue for the brand. Aviva's “Education is insurance” is an incredibly powerful platform that will touch people not just in advertising but in all kinds of new and innovative ways. Just go this weekend to Ansal Plaza to see Aviva's Great Wall of Education and you will see how. (Just make sure you bring along a book to donate!)

There is a new digital initiative through the launch of Proximity. Could you elaborate on its functioning in the Indian market? What are the kind of existing digital outfits it is expected to compete with?

Digital is like oxygen … it is everywhere. So it is not a separate outfit. Digital expertise is embedded in the agency. Proximity allows us to bring in specialist skills and global tools - particularly in the areas of CRM, ECRM and data analytics. But it will always be a single P&L. We won't create separate silos that we have to then sell to our clients. We will understand our clients' needs and then organise our resources to provide a Total Work solution.

In your presentation during the global study on the effect of the slowdown on consumers across markets, you said 62 per cent of Indians would be willing to buy fewer items of better quality, even if it meant spending more. So are you saying that Indians did not downgrade during the recession?

Relative to other markets the data shows that Indians were less likely to downgrade but to cut out individual items from their budgets. By comparison, in the Chinese markets consumers are more likely to maintain the items that they buy - but just do so at a lower price.

How would BBDO India gain from this research while creating its future advertising campaigns? Can you give some examples?

The presentation illustrates six consumer responses that have emerged over the last 18 months. The brand frameworks are very helpful in our planning processes. One of the most interesting things to emerge is the increasing importance of causes and the community. There has been a marked rise in philanthropy and we are seeing consumers seeking greater meaning in their lives. This is a rapidly emerging opportunity for brands — but it must be central to the brand promise and true of the organisation. The Starbucks campaign in the US that encouraged community service, Versace's link with the One Foundation in China and Aviva's support of education initiatives in India are good examples.

With stalwarts such as Josy Paul and Ajai Jhala leading the Indian operations, how would you be leveraging their experience in making BBDO India a top-league agency, especially with WPP dominating the ad industry in India?

The way we will compete is by worrying about how good we are and not how big we are. Scale is not a competitive advantage — big ideas that builds brands are what clients need. And generally those ideas come from small teams of senior, talented practitioners working in close collaboration with their clients.

What are the total billings and growth projected by BBDO India and the future of the agency in the country?

We don't reveal billings figures but we are happy with progress. However, successful agencies have to have a sense of positive dissatisfaction.

We have to constantly challenge ourselves. It is easy to be a good agency. It is much harder to be a great agency.

Clear sight

Bausch & Lomb has launched PureVision Toric Lenses. These lenses come with patented Advanced Lo-Torque design that claims to provide consistent and sharp vision, even in low light conditions. The silicone hydrogel material reportedly provides up to five times more oxygen to the eye than traditional lenses, enabling the consumers to wear these lenses for extended hours. These lenses are available at all the major optical outlets in the country. A pack of three lenses cost Rs 1,110.