Which verticals are you looking at for expansion in the Indian market in 2017?
Bhandari: We are looking at stationary equipment as an area of focus. We are also keen to participate in the growth of the construction equipment market, which is happening at a rapid clip in the excavator space. In power transmission, we are strongly placed in the automotive sector. These are the three verticals where we anticipate strong growth coming in. On the industrial side, I would like to name the machine tools sector as it recorded a 40 per cent growth last year. We expect similar growth for this year also. So, capital equipment is another rapidly growing area of our business.
Khoo: We are also focusing on growing our engagement with auto makers, and are looking at two-wheelers as far as passenger vehicles are concerned.
Interestingly, you have also evinced interest in expanding in the power transmission sector in a significant manner. How do you propose to do this? Are you also looking at servicing the renewables space?
Bhandari: Yes, we have applications on the renewables side, both for solar and wind energy. We intend to expand there as the government policy supports alternate forms of energy. On the power transmission front, we are expanding both on the automotive and industrial side.
Khoo: Drive conversion is one area we focus on. It is about energy, efficiency and the ability to sustain with little maintenance. For instance, a belt will not have multiple points of failure. And since it is lighter, it is more efficient. We have the advantage that we can apply the product to a wide range of applications. The next is just having the capability and clear methodology to be able to implement prototypes. There are many sectors in industrial that we can think about. In food processing, you don't really want your meal to be processed on a rubber belt. So, we have highly specialized belts approved by the US Food and Drug Administration (USFDA). We are looking at all those segments for our further growth in India.
Does that imply you are also looking at a major capacity expansion and significant hiring?
Bhandari: Absolutely! We have plans for capacity expansion and hiring. Both are in the execution stage.
Khoo: We have a large number of open positions in our commercial team. Today, our network is quite extensive in India and we continue to add people. For us, the challenge now is to figure out how fast we can onboard people and train them with the right tools.
What kind of numbers are you looking at here?
Bhandari: We have a significant number of people who are coming on board. It will be about 10 per cent of our existing manpower. As of now, we employ close to 1,400 people in India.
Are you also looking at ramping up your product development in India?
Bhandari: We are already very strong on product development in India. As a result, we are ahead of the market and the competition. We have developed products in India for India. Those are now also finding global acceptance. We have a competent product development team in place here as the country is an R&D centre for our business.
Khoo: About 50 per cent of our business comes from first fit, which means we develop our products in partnership with our customers. We hold over 2,500 patents, therefore, innovation is really part of our DNA. And that's one of the advantages we have as a global organisation.
Bhandari: India is a price-sensitive market and people tend to look at fit-for-purpose products. Some of the applications that we developed for products here are being put to different tasks in other countries. For instance, spec line or wire braid hose types, AG R1 and AG R2, which are now globally referred to as CR 1 and CR 2.
The market is getting increasingly competitive. What moves are afoot at your end to retain your leadership position?
Bhandari: Technology differentiation is one factor that brings customers to us. Moreover, our products are developed to meet customer needs. These are some of the factors that help in our growth and makes customers partner us. Khoo: I think it is as simple as going back to globalisation. We are able to scale up as our customers scale up globally. We have a presence in over 106 countries. Having integrated R&D capabilities across continents is one of the key aspects of being able to serve our customers. Whether one likes it or not, customers now focus on speed of response. The other thing is whether you have the capability in terms of meeting specifications. For instance, look at the latest features and functions being added to cars. We are able to innovate them together with manufacturers.
But then the voices calling for protectionism in especially developed western economies have also become very shrill of late. Do you see that having any impact on your business?
Khoo: I think our presence globally is quite balanced. That's one view. The other view is, we have manufacturing capabilities in many countries. Therefore, we don't see an impact in the short term. However, I can't speculate how things might change in the long term at this point.
How do you perceive GST, the one country one tax regime?
Khoo: We have to build a comprehensive logistics network across the boundaries of cities, states and so forth to get our manufactured products delivered to customers in India. Therefore, GST is something that we look forward to. It takes away some of the inhibitors or hurdles so that we can serve our customers more efficiently. I think that's a huge benefit.
Bhandari: In the Indian context, the unorganised players have been avoiding paying taxes. GST will bring them into the tax net. This will help increase the competitiveness of the organised sector. In other words, it will help expand the market for us.
You often point out that products in India are more abused than used. What is the key takeaway in that for an equipment maker doing business here?
Bhandari: We have to teach our users about the do's and don'ts. It is an evolution as at times, our people are not exposed to the latest technologies. Today, a lot of equipment is coming loaded with electronics and their use needs to be taught. We are working with OEMs and going to their end-customers to educate them on how to, for instance, rightfully use hydraulics in an equipment. This helps in improving the life of equipment and, in turn, also returns to the customer. If you educate the operator, the equipment owner also gets automatically benefited.
Khoo: I think it is important to build products that are robust. Another way of looking at 'the abuse' aspect is that India is a tough environment. At Gates, we work with a mission that our products match up to certain specifications. We have a legacy of developing products that are mostly above expectations in quality. I think we need to continue down that path. And India is a good place to test the robustness of our offerings.
- Manish Pant