'In a JV it is important for the two partners to be very clear on what their objective is'
The Rs 600 crore Hettich India (a joint venture between Hettich Group, Germany and the Saroj Poddar Group) are all set to start manufacturing in their third manufacturing plant in Indore in September this year.
The Rs 600 crore Hettich India (a joint venture between Hettich Group, Germany and the Saroj Poddar Group) are all set to start manufacturing in their third manufacturing plant in Indore in September this year. During his recent visit to India, Dr Andreas Hettich, the fourth generation owner of the Hettich Group and Saroj Poddar, Chairman, Adventz Group (Saroj Poddar Group), in conversation with Ajita Shashidhar, spoke about their 17-year-old JV, the furniture market as well as on why India scores higher as a manufacturing hub over China.
Here are edited excerpts from the interview:
BT: Hettich's JV with the Saroj Poddar Group is over 17 years-old. In the recent past there have been several instances of failed JVs between MNCs and Indian companies. It will be interesting to know what you have done differently to make this JV work?
Poddar: Hettich India was set up in 2001, and it's been a fruitful and productive joint venture. It's a 50:50 JV and we have grown from 2001 to till date at a compound annual growth of 15-20 per cent. We started from less than a crore, we are already Rs 600 crore.
The relationship between us is such that we explicitly trust each other. In my career I have done 10-15 joint ventures. I can say with a lot of pride that not one JV went sour.
In a JV it is important for the two partners to be very clear on what their objective is for the JV. If you are clear on your short term and long term goals, I don't see a problem. The problem happens when one tries to dominate. But if your objectives are met then why would you want to dominate?
In Hettich India, the support we are getting from the Hettich Group and Andreas personally, has been fantastic. In the initial days when we set up the management team in India, we wanted to get into manufacturing. Not that Hettich was reluctant, but they also had inhibitions in terms of India's manufacturing capabilities. Nevertheless, we started with one factory and then completed the second one and now we are planning the third one. Now they are relaxed and comfortable that India management can take charge.
Hettich: India is a huge country and there is a growing population of middle class and premium customers and they are demanding for latest technology. This was a natural choice for us. On the other hand, it is not the easiest country for a German company to do business. Therefore, we are very happy that we found each other.
If you look at the kitchen or furniture industry in India we are larger than any of our customers, which is uncommon. There are no really big manufacturers in the country even today to develop. There are thousands of dealers and it is very hard to reach them. In Japan, you look at the Yellow Pages, spot out the 10 largest customers, call them and you have 80 per cent of the market. It is very difficult to reach out to dealers in India, as there are so many of them. We also learnt that India isn't one country, there are different cultures and food habits. It is diverse, which wasn't known to us. So, it's not that easy to really get a good start. Therefore, to have an insider and have a well established businessman made sense for us. We have four board meetings a year and we never miss one. There is a clear commitment from both sides.
BT: Is Hettich India profitable?
Poddar: In the last 10 years we have been growing consistently. We are highly profitable.
BT: You said that India is a distinctly different market. So how different is your approach towards the Indian market?
Hettich: In India we have application centres to educate our customers and we need to have because the country is so huge that we can't reach out each and every customer (furniture-makers) individually. If it is a market like Japan, where you only have 10 customers we don't need application centres. We directly go there, discuss with their technicians as to how to implement. Here, we are producing 500,000 kitchens, so totally different relations.
India is also the only market in the world where we do TV ads, because we are drawing the end consumer, who is the dealer, to ask for Hettich and get knowledge about it. Our product is not that obvious to the end consumer. It is usually hidden. It's like a chip in the computer. So, we have to make the consumer aware of it. So, we are spending more on marketing to build the brand here to draw the attention of the end consumers, though it's not our target to sell to them.
BT: The concept of branded furniture hasn't really been successful in India. Why?
Poddar: When you look at furniture brands, you are looking at brands only in the high end. High end brands have come, but if you look at mass merchandise most of it all over the world are not branded. They are sold by large groups such as IKEA. There you can buy products of 50 manufacturers, but you go there not to buy a particular brand, you go there to buy a product and you have a choice as a consumer to see whether you want a German or French made furniture.
When we launched Gautier, it became a household name. Unfortunately, Gautier went out not because of any problem between us. It was between the company that owned Gautier in France and them. It was bilateral issue between the two partners in France.
In India, the big brand is Godrej. They are doing quite well. In Style Spa (formerly Gautier), we are adding some more products, it is selling very well.
The problem in India is not selling, the problem in India is that the retail space is far too expensive. If you are selling a Parker or Waterman pen, it's different. If you are selling furniture and occupying 20,000 sf.ft. of retail space, the current rents and then the yields on the rentals isn't commensurate. Abroad, if you see, most furniture shops are located in the outskirts and are gigantic, they sell very well.
In India, I don't think there is a problem. With the growth we are expecting in the country, the potential is immense. I am optimistic.
BT: How would you rate India as a manufacturing hub compared to China?
Hettich: In China you find a wider range of suppliers, machinery and the infrastructure is better. However, the labour costs are going up and energy costs are also going up. So, from a mid to long term, India is a much better option. We also found that India has very skilled people. The skill level is quite high in engineering, manufacturing as well as management. What makes much more easier is they all speak English.