Carmakers Turn to Expats to Steer Their Business in IndiaPublished: February 07, 2013 in India Knowledge@Wharton
India is one of the most difficult markets worldwide; most corporate leaders believe that if a company can succeed here, it can succeed almost anywhere else across the globe. Stephen Elop, president and CEO of Nokia, once said: "India is like a petri dish for innovation. If we win here, we can win everywhere. Conversely, if we lose here, we could end up losing in lots of other markets." To crack this market, most multinationals hire an Indian executive to head the business. Their logic is simple: Locals know best how to navigate the many twists and turns.
But the automotive sector seems to have opted for a different track. Most multinationals in this industry bring in expats to steer their operations in India. At General Motors, for instance, Lowell Paddock took over from Karl Slym in January 2012. At Hyundai Motors, Bo Shin Seo replaced Han Woo Park. Eberhard Kern succeeded Peter Honegg at Mercedes Benz; Gerry Dorizas took over from Maik Stephan at Volkswagen; and at Audi, Michael Perschke followed Benoit Tiers. Some firms like Skoda, and recently Ford India, do have Indians at the helm, but they are more the exception than rule.
What is it that expats bring to the table? Arunav Banerjee, president and chief researcher, School of Inspired Leadership Innovation Board at the Gurgaon-based SOIL Business school, says: "The automotive industry requires a composite knowledge of sales and marketing, production and supply chain, engineering and design, human resource and finance. While expertise in other areas can be found within India, there is still a vacuum insofar as people who are able to understand the technical aspects and integrate them into a holistic approach are concerned. This competency is particularly critical in the start-up phase where key decisions on infrastructure, machinery and processes have to be taken."
According to Anand Louie Joseph Lawrence, senior consultant, manufacturing and process consulting practice at Frost & Sullivan, it's all about DNA. "Every car is different, and the difference is technical. It is their DNA. Hence, when any car company sets up a new plant anywhere in the world, it gives critical importance to ensuring that this DNA is transferred unaltered to the new location. So, it is almost inevitable that a trusted lieutenant [is] delegated to efficiently and effectively transfer this specific technology to the new site."
Lawrence adds that during the initial few years, an expat CEO also plays "a vital role in ensuring trusted and effective coordination between the local and central teams." And this, he says, becomes even more critical when one has to factor in not only the design confidentiality but also implement specific production systems, set up the inbound and outbound supply chains, develop vendors aligned to the company's DNA and so on. And with India being one of the most attractive markets for global carmakers, they don't want to leave any loose ends.
India, a High-priority Market
India is currently the sixth largest car market in the world. According to estimates by global management consulting firm Booz & Co., by 2015, India will exceed every major European market like Germany, France and the U.K. in automotive sales and become the fourth-largest auto market by volume in the world. Booz & Co. expects that over the next two decades, car sales in India will exceed the U.S. market.
The news at present, though, is not very encouraging. Industry body Society of Automobile Manufactures (SIAM) recently revised its estimates for growth in car sales in India for financial year 2013 to 0%-1%. This is the fourth time that SIAM has revised its estimates since April 2012. At that time, it had pegged growth at 10%-12%.
However, the India story is expected to remain strong in the long term. "India Inc. 2020: Four Ways to Become a Global Leader," a report by McKinsey & Co. released in 2011, summarizes the potential of this market: "Over the next 20 years, the urban headcount in India will rise to 590 million; city-based Indians will account for 70% of India's GDP and create 120 million new jobs. Incomes will also triple, raising 290 million people out of poverty. And India will have 270 million enter its workforce, making it the world's largest labor pool. As a consequence, India will materially affect the global demand for, and supply of, goods and services."
According to accounting and consulting firm Grant Thornton's International Business Report 2012, India ranks second in the emerging markets opportunity index. The report states: "India is the second most populous country in the world, boasting a consumer market of 1.2 billion. Its population is comparatively young and can therefore still benefit from the demographic transition (where numbers of workers increase relative to dependents, providing a boost to economic growth)."
Behind the Wheels
It is this potential that the global auto players are looking to tap with the expertise of their top executives. Take Michael Boneham, who was at the wheel at Ford India from July 2008 to December 2012 as president and managing director. Boneham's 27-year-long career at Ford began in human resources in Ford Australia. He then learned the ropes in manufacturing and general management roles in Europe, North America, the Asia Pacific and Africa. In India, he started as executive director (manufacturing) at Ford's facility in Chennai.
Boneham drew his confidence from the "One Ford, One Team and One Plan" strategy introduced in 2008 by Ford's global president and CEO Alan Mulally. The idea behind this strategy was essentially to balance Ford's cost structure with its revenue and market share, accelerate development of new vehicles that customers want and value, finance Ford's plan and rebuild its balance sheet, and work together to leverage its resources around the world. Key personnel such as Boneham were entrusted to execute this vision in their respective markets.
"[I] was convinced that like other markets globally for Ford, the strategy [would] also work in India," says Boneham. "When I moved to India five-and-a-half years back, we recognized that 70% of Ford's growth by 2020 would come from the Asia Pacific and Africa regions, with China and India as key players driving this growth. It was critical for Ford as a multinational corporation to move from being a niche player in India to a volume player. It was challenging for me and the team to understand the pulse of the customers, the economy, and get the confidence of our board to invest in a market where we had not been previously successful," recalls Boneham.
According to Boneham, India is the "most competitive automobile market in the world." He says that it requires companies to go through a process of unlearning and learning, starting with research, product development, frugal engineering and "delivering material costs that enable [firms] to deliver a price position that meets the expectations of the Indian customers."
Reinforcing the country's importance in the auto world, Ford had the global launch of its hatchback Figo in 2010 in India. Boneham says that Figo has proved to be a game changer for Ford -- helping the multinational corporation to move from being a niche player in India to a volume player. He adds that the Figo also became the launching pad for Ford India to "go further -- with an [additional] US$1 billion investment in the country (at Ford's Sanand-Gujarat plant) and eight new products [planned] by mid-decade." Ford entered India in 1995 and, prior to its latest investment, had pumped in US$1 billion in the company's Chennai manufacturing facility.
Boneham says that the India stint prepares auto executives for the world. "If you are successful in the Indian market, you can be successful anywhere in the world. The Indian consumers want great value for money, and cost of ownership is absolutely critical. It's not just purchase price; it's the lifetime experience with the vehicle that the consumer looks for."
While Boneham has handed over the steering to Joginder Singh, an Indian national, Singh, too, is an old timer at Ford and comes with a lot of global exposure. Singh joined the finance function at Ford Europe in 1980 and went on to take up various roles in treasury, strategy and general management -- across Europe, the U.S. and Canada -- before re-locating to India in 2008. The only other head of Indian origin at Ford India was Arvind Mathew (from August 2005 to June 2008), but then he, too, came with a wealth of international experience.
Meanwhile, at Audi, which set up its sales company in India in 2007 under Benoit Tiers, Michael Perschke took over the wheel (from Tiers) in July 2010. Like Boneham, Perschke, too, has a global profile. He was a member of the European turnaround team at Mitsubishi Motors and ran the European dealer network as well as the M&A business which resulted in the setting up of three national sales companies in Belgium, Switzerland and France for Mitsubishi. In France, he acted as managing director in the build-up phase. When he began at Audi AG, Perschke was given charge of the European service network project with the target to improve service network quality and develop European network quality standards for 28 countries.
In India, Perschke's mandate is to position Audi as the No. 1 luxury car brand by 2015 and sell more than 50,000 units by 2020. To achieve his target, Perschke says he has been working to "change Audi's profile from that of a niche SUV to a luxury car manufacturer." He has got his team to go back to the basics, relook at the product portfolio, and bring dealers on board. He started with the A8, a luxury sedan in Audi's portfolio, and decided to focus on people he calls "class-defining leaders." In an interview to business magazine Forbes India, as part of an issue naming top corporate leaders and social icons, Perschke said: "Baba Kalyani used to drive the Mercedes S class for 20 years. He now drives the A8. Adi Godrej is a customer. Narendra Pawar of NIIT, Malvinder Singh from Fortis, Pawan Munjal, Rahul Bajaj, Rajiv Bajaj, Sanjiv Bajaj, Abhishek Bachchan, Ranbir Kapoor… they're all my customers today."
Perschke believes that his earlier stint as general manager with Mercedes Benz India from 1997 to 2000 is helping him in his current role. He notes: "My first experience [in India] was 15 years back. At that time, India was in a different stage of development. I learnt about the deep-rooted cultures and values. This is still applicable today, but the dynamics have drastically changed. Today, India is young and progressive." So, apart from the "class-defining leaders," Audi is also focusing on young achievers. According to Perschke, while the class-defining leaders make a "statement" on the one hand, Audi's young followers on social media like Facebook and Twitter contribute to positive word of mouth.
The luxury automaker is also making inroads through showrooms in tier II and III cities such as Coimbatore, Nagpur, Bhopal, Goa and Ahmedabad. "Today, the trends are followed much faster and there is a latent hunger for luxury. People want to be driven better and in style, even if it is in [smaller cities like] Agra, Chandigarh, Nagpur or Bhopal. We have been focused on China for many years…. We realized that India is really at the next step…. Probably, in 10 years, India will be the third or fourth largest nation in the automobile world in terms of sales," says Perschke.
Perschke has fielded the challenges in the Indian auto market pretty well. The rise in input cost, rupee fluctuation as well as continuous increase in fuel prices forced him to re-evaluate Audi's pricing strategy in the country. He bit the bullet and increased prices across all models. At the same time, though, he offered his customers customized and innovative finance options from Audi Finance. With a network of 24 dealerships, Audi India ended calendar year 2012 with 9,003 cars, an impressive 63% growth over the previous year (and higher than its 2012 target of 8,000 cars). It also overtook Mercedes to become the No. 2 luxury car brand in India, behind only BMW, which sold 9,375 units in 2012.
Poonam Yadav, executive vice president, industrial practice leader-Asia Pacific at DHR International, which specializes in cross-border recruitments at the top management level, notes: "From the perspective of the foreign management, India is a black hole. Sitting at headquarters, they want a trusted aide to keep them updated on a realistic scenario. Many MNCs who enter India in a joint venture partnership do not feel that they are aptly updated, hence they feel the need for putting their own person in charge."
Developing Global Leaders
Sachin Mathur, an independent researcher tracking the auto industry, offers another perspective. "Auto MNCs are looking at cultivating a wider resource pool of leaders who can manage operations across geographies. Even the new Indian CEOs come with significant international experience. While local market knowledge is an advantage, a competent senior and middle management team can be trusted to provide the same. The human resource challenge is to identify and develop such future global leaders from the management cadre, and to get the organizations used to leaders who may come from varied cultures and experience profiles."
This is true for Indian auto majors also. Tata Motors, for instance, appointed Karl Slym as managing director in August 2012 to take over from old timer P.M. Telang when he retired. With a track record of 17 years at General Motors spanning different geographies, Slym has also been given the responsibility of leading Tata Motors operations in international markets including South Korea, Thailand, Spain, Indonesia and South Africa.
"Indian OEMs prefer expat CEOs mainly to achieve their global aspirations. Their immediate task is to establish their brand overseas, and hence they prefer a person with global exposure," says Vijay Kakade, director-automotive and transportation practice at Frost & Sullivan.
Like Boneham, Slym also believes that "there is no other market so challenging [as India] and yet so exciting" for the auto industry. He notes: "It used to be that international success helped companies win in India, but now it is reversing. We see that the experience in India helps players compete [better] globally." Slym considers himself lucky to have worked in the automotive industry across eight countries. "I have worked for a foreign manufacturer building in India and now an Indian company developing globally. The demands of the Indian market are now no less than any Western market. That experience is key, for both our domestic competitiveness and our global aspirations."
Meanwhile, the India opportunity attracts top talent easily. DHR International's Yadav notes that India's growing manufacturing prowess coupled with the slowdown in the Western economies are key factors driving this trend. "In fact, India is a favored employment destination in the emerging markets due to its large English-speaking population when compared to China and Russia," she adds.