'Liberalisation has completely
decimated the mid-sized company.'
How did you arrive at the revenue targets for your unit heads? Why 29 per cent of net worth on assets revalued every three years? Why a minimum of 24 per cent on capital? And why 21 per cent on new investment? Why should growth be just 25 per cent higher than the average industry rate? Why should international operations and exports contribute to more than exactly 50 per cent of the group's net profit? How have the figures been worked out?
They are to build the organisation for a 15 per cent operating margin. Profit before interest and tax as a percentage of sales. We are driving the organisation to have a 15 per cent operating margin. Just keep this in mind. Because we want business which has a higher value add per unit. We have been using various financial indices for internal measurement. But the simplest one that you should keep in mind is 15 per cent operating margin.
What would happen to the unit that fails to meet the targets?
We would try to change the business. Or we would try to create value differently. Like, for instance, our consumer business is not giving 15 per cent operating margins. So we tell ourselves, in that business we are building strong brands. It must have a lot of value. The brands have a lot of value. So we are happy with a 10 per cent operating margin. And return on equity is very high still because you roll over your money much faster in that business as compared to the infotech business. But we are driving the organisation for a 15 per cent operating margin. At the corporation level. And we will have it very soon.
What are your plans for the group's loss-making finance business?
We are repositioning the finance business. We don't want to be a large player in asset financing. Because it is a different ball game. We don't want be a part of that ball game. It has a different set of players. They are the Kotak Mahindras. They are the ICICIs. They are the IDBIs. They are the Citibanks. They are the GE Capitals.
We don't want to be a part of it. Because you are talking about hundreds and hundreds and hundreds of crores of rupees.
We want to be in the very specialised areas that are very service oriented, which are very fund-base oriented.
We will build certain expertise in certain areas... build a small profitable niche business in that area. And we are repositioning the company. We have had problems in the company. It is obvious to everyone...
What went wrong?
In the post-mortem? We got greedy.
We got carried away into making a lot of money. And therefore our systems of evaluating our customers were lacking. They were not sound. They were not robust.
Secondly we completely underestimated... It is a mistake... what liberalisation would do to mid-sized companies in the country.
Liberalisation has completely decimated the mid-sized company.
So we have decimated the entrepreneurs of tomorrow. As a country you have decimated the entrepreneurs of tomorrow. It is a very sad thing. But it's a reality. Because when you have to write off some company... you take ITC, whether you take Shriram, whether you take Wipro, whether you take Kotak Mahindra... Kotak Mahindra has already written off 60 crores. But it is very big. And fortunately for them, their corporate asset base was only 40 per cent of their total asset base. Rest of it was in cars and trucks. There they still have problems.
Where have all their write-offs come from? Their write-offs have come from lending to parties of a size 50 to 200 crores (Rs 500 million to Rs 2 billion) who are not able to face the current competitive situation. And they are not able to pay so they are getting worse, that whole group of companies. And not all of them are well managed, necessarily. But at least 30, 40, 50, per cent of them are very well managed companies.
But they have been decimated. They have not been having the resources, the quality of leadership or the horsepower because of inflow of competition from larger players and from imports. How will they be able to be competitive?
One is we did not go into a robust process of evaluating them because money was easy to be made. And two is the market situation has turned so much against them that even those who were well managed are not finding the cash flows to repay the loans that they have taken.
In the context of competing with multinationals you have been quoted as saying that "We are tightening our belts and we are doing it faster than other." Who are these others and how do you justify your claim?
We are growing faster than others. GE Medical Systems has gained market share over Siemens. We are making money when Siemens is not making money. You take fluid power. We are growing faster than the competition. We are making money. The competition is not making money. You take the hardware business. I think we now have got a cost structure in the hardware business that is viable. We learned the hard way. I think we are a little ahead of the pack. I am not saying we are significantly ahead of the pack. I am not saying we are satisfactorily ahead of the pack.
What is clear is that when the situation is going to get more competitive there will be some people who are going to be successful and there will be people who are not successful. It will not just be determined by strategic brilliance, it is also going to be determined by operational excellence. It is important to invest in low cost and high quality. And the most important driver we have for this is our mission quality.
What events led to the situation where you had to decide on a corporate facelift, complete with a new logo?
If you have a vision of being on the top-ten list of companies in the country, you have to have a consistent brand image to go with it.
That is because there is a very high correlation between a brand image and the outside world, including your customers' world. Evaluation of the company is there in the way you talk about it, do business with it, give reference of that company, work with that company, be a dealer for that company.
We were just having a very diluted branding. We have a brand image of being a very diversified company. We had no brand image of being a very high quality company or innovative company. We said we would just take stock of what our brand image is like. And we asked what needs to be done to be able to project the identity of the company that will at least portray the strengths and the direction we are moving towards.
And that's what I think our identity is portraying now. Our strengths and the direction we are moving towards in terms of our four values. And it's been researched in terms of the vision. It's been researched in terms of what is the meaning of 'applying thought' (the phrase in the new logo). It has been researched in terms of is it compatible with a business as diverse as selling bulbs to a business as dealing with a General Electric for developing a very sophisticated software product. And our research says it is.
And the gut feeling we are getting now, talking to customers after we have launched this, bears out the research. So we are hoping to give a more uniform projection of the identity of the group across to the outside world and equally within the company.
We are wanting to register our brand much stronger. It has a very important strategic advantage in the emerging markets. We are wanting to have more of our products under our Wipro brand. Because it amortises our cost of promotion much better. Across the range.
Is it working to your expectation?
It is working to our expectation. Whether we require to fine-tune it, we will know in the research within six months from now. We are breaking into a campaign now. I do not expect many changes to come. Things will only be more fine-tuned. But that's because it has been backed by so much research. And revalidated research. So, we have overdone it to ensure that we are not on ice.
Wipro is increasingly being identified as an infotech company. Is this perception to your liking?
It is not good for our people who are not in the infotech business. Because they feel that they are a part of the periphery...
There has to be some loss of morale...
It happens that one business becomes more predominant in the product portfolio, business portfolio of a company... The solution is not that you get out of the other businesses. The solution is to say that you will focus on businesses where you are beginning to become more successful.
That's what we are trying to do. Because we are not eminently successful in the finance, corporate financing business, we are saying how do you reposition that business. You are able to draw up on your software services competency, you are able to draw up on your services competency and have a nice focussed financial business. That is really bridging your expertise.
Analysts keep saying that you must hive off the infotech business to improve your market cap...
We have proved the market analysts wrong...
Yes. But do you think you are under pressure from them?
Less today than we were 12 months back. Everyone believed that Wipro would never get market value unless it hives off its software businesses. We have proved them wrong. We have got a market value in terms price earning, multiply it and we are higher than Infosys.
Dileep Ranjekar (vice-president, human resources) has been quoted as saying that "In the emerging competitive environment the scope of making profits by raising prices has all but disappeared and the only way you can make more money is by cutting down costs." He goes on to say that the Six Sigma project will help achieve this. But is this really the only way? In software, will innovation and speed not be an advantage that could outweigh a competitor's lower price?
Don't take him out of context. Of course, costs are important. What does the customer need? The customer wants more value. You go into a shop. You are not going to buy a Christian Dior today... of shirt... assuming they are available in India today.
I am wearing a Zodiac shirt. They are absolutely first-rate shirts. They are equivalent to the best Arrow shirts you can buy. So, you may buy the Arrow brand but you pay 30 per cent more for the Arrow brand. Or pay 10 per cent more for the Arrow brand.
The customer is very determined by value for money. The premium he is paying for differentiating between alternative brands is getting more and more narrow. The customer now is getting more parsimonious, he is getting more smart, he is getting more conscious of his money, even if he is a rich customer.
You have to be able to make profits by having good quality products at a lower cost. That's what I think Dileep was trying to say.
There is a limit up to which you can keep on charging more to the customer. Because the competitor is giving to him or her an alternative at a lower price which is equally good. So you have to watch the other side of your stack-up structure in terms of what you give.
But, of course, what you deliver has to be in a very superior manner, in a very innovative manner, in a very quick manner. So you have to attack on both sides. You can't do the attack on just one side.
Indian PCs are squeezed between MNC brands and the grey market. How do you see them getting out of the jam?
The interesting thing is that the local brand is surviving all over.
Why is it not happening here?
It is happening in here. Why do you say it is not happening here? The market is now moving towards roughly one-third grey market, one-third local brands and one-third multinational brands. I think last year, the share of multinational brands has come down.
Yes. It did come down. But recent IDC figures have put the grey market share at 60 to 70 per cent.
The grey market is very high. Part of the grey market is a very legitimate market. Part of the grey market is what I call the Mickey Mouse market. And when I say Mickey Mouse market, I mean the people are not following the law of the land. And they are getting a cost economy by not following the law of the land.
I do not know how much of the 60 per cent is that but it is a significant amount. There we are not fighting with equal competition. I think there the government needs to take action to see to it that the people follow the law of the land.
But I do believe, good quality, aggressively priced, Indian quality products would be seen gaining in market share. We have no doubts about that. We have no doubts in our minds that we will be able to make the Wipro brand a success and grow in market share. No doubt about that.
Acer started out of a shed around the same time as Wipro did and look at the kind of global branding it has achieved. Why have Indian companies not been able to do that?
Because people didn't invest in brands. Indian companies did not invest in brands, including Wipro.
That's why we now have a new identity because we are going to invest in the identity.
Two is we did not have the volume and scale. Because we only looked at domestic marketing and they looked at global marketing.
Acer invested in the brand but they invested in the brand primarily in the last five years. They did not focus on the brand before because their whole focus was on OEM sales. And two is they always looked at the world as the market. They never looked at Taiwan as their market.
You are very choosy about your alliances. How do you go about an alliance?
There is a lot of difference between an alliance partner and a financial joint venture partner. We have many, many alliance partners. We redistribute their products. We use them to distribute our products. Then we work with them in terms of technology sharing. That is a much simpler issue. It can be typically handled at a much more junior level.
It is only when you set up equity ventures, when the issues come up about who manages the company and how large is the size of it. Then things get escalated in terms of complexity that is much higher.
We are very cautious in terms of equity partnerships. Primarily because we have to have this enormous amount of top management time. So, unless that equity partnership has a very strong strategic reason we wouldn't do it.
Like, one of our distributors, and a very leading world distributor, number one in the world in that particular product, is saying let us form a joint venture company.
You own 75 per cent and we will own 25 per cent. But there is too much top management time involved in terms of consideration of shareholders. Because he is a public company and we are a public company there are a lot of issues involved when you have to be spending a lot of top management time.
Take the case of Acer. Why would not Acer launch here its own brand independently...?
Why not ask the same question to Wipro? We both bring something to the table. They bring their technology on an ongoing basis. They bring very high quality of products that we need. Some of this is assembled in India and some is brought directly into India...
Aren't the days numbered for joint ventures with foreign companies, at least in the PC industry?
I don't think so. Because if anything, the technology is becoming more volatile. Product lifecycles that you were running at 18 months, today run somewhere between 6 and 9 months. It is very difficult.
Acer will do this year, I think, something like 6 million shipments of PCs. The total size of the Indian industry in 1998-99, I think, will be something like 800,000 or a figure like that. Acer will be shipping out something like 8 times of what is the total India demand!
Now what has the company got an advantage of? It can spend a lot more money on R&D. It can spend a lot more money on component technology. It can spend a lot more money on building the brand. And it can spend a lot more money in terms of products that have a short lifecycle because you get quick volumes and are able to amortise the development costs in the short lifecycles. It's not easy to do that if your volumes are low.
For some time now, you have been having two PC brands. The Wipro Acer and the Wipro SuperGenius. You are also going to use the same distribution channels for both the brands. Would this lead to confusing the market?
One has to learn to manage confusion in the field.
How do you think the consumer will react?
I think there is a set of customers that is happy buying a good quality Indian brand. And there is a set of customers, primarily the multinationals, that is guided by their overseas requirements, which say that you can only buy an Acer, Compaq, IBM.
So the market is segmenting itself. There is a group of customers that wants a multinational brand because its corporate policy dictates a multinational brand. There is a group of customers that want a best-value brand. And there is a group of customers that will fly between the two. For certain applications like servers they will want a multinational brand because they consider it more mission-critical, more specialised, more high technology. For certain applications like desktops they will say why should I pay 10 per cent premium for a Compaq.
The idea is that you must train your distributors and your field force to be able to pre-size the customer's requirement early in the game so that you are really populating a product which he is looking for.
What would prevent a company like Compaq from dropping its price in the country so as to increase the inventory of the local brands up to a point that their profits disappear? After all, the India sales of Compaq must be less than 1 per cent of its global sales. They could easily do it and not even flinch? It is a serious threat.
There are certain anti-dumping laws in the country. Government agencies are serious about it. We have to operate within the anti-dumping law.
The second issue is that Compaq, as a company, is a high-cost company. And now what happens is if their prices for India are realistically low, a shipment form Singapore meant for India, of Compaq, will not come to India. It will go somewhere else.
This cross flow happens all the time. Nothing stops that shipper to divert that shipment to somewhere else. So they are very afraid in terms of... You know, no market today is completely isolated from the other market. So it is not a practical proposition for them to have an artificial pricing in one country as compared to another country.
Also, there are some international laws on this in terms of discriminatory pricing. Like we have international laws today on anti-dumping, we have laws on discriminatory pricing. Like for instance, GE cannot have a drastically different pricing structure for India as compared to what it has in Japan. Because there are US laws that determine certain fairness of pricing across countries or across products or across geographies.
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