There is no virtue in becoming an MNC: Suresh Krishna

With the new economy gaining focus, Indian industry faces the daunting task of gearing up for the future. Leading industrialist and Chairman, Sundram Fasteners, Mr. Suresh Krishna, touches upon the sensitive issues in a conversation with K. T. Jagannathan. Excerpts:

QUESTION: With a lot of focus on the ICE (information, communication and entertainment) world, where do old economy companies like yours head for?

ANSWER: We computerised way back in 1967. We started with the punch card system, cards, sorters and the like. We started computerising Sundram Fasteners when we were a small scale company in 1967. The entire company is very computer-friendly right from the beginning. People have learnt over a period. From punch cards, we went to 1401 and then to 360. Now we are on Oracle and UNIX, connecting all our factories.

People are now talking about B2B transactions. I still think B2B in India is very nascent. Standards have not been fixed. People are talking about getting together, fixing standards and dealing with one another. B2B is not just buying and selling. We also have to take into account things such as excise duty, sales tax, the kind of forms those people will need, whether they will allow complete transactions by computers without complying with the laws of the nation and what not. Laws of the nation need to be changed.

The second thing is there has to be a lot of discipline in the B2B business. It is not only delivery but also receipt of money. You can't make one thing electronic and the other paper. Cheques will have to be transferred electronically. That means you have to pay on time. That means decisions to pay will have to be taken out of managers. These have to be done by computers. I have been supplying to General Motors for six years. I have not signed a cheque. The computer pays automatically. It knows the due date. And pays on that date. There is no human intervention.

You have to establish standards so that everybody uses the same kind of system. If each one uses a different system, then you will have a problem. People should not get into an ego trip. I can't say my system is better than yours, so you better comply with mine. So, some kind of standardisation has to take place. My personal feeling is that India will need to do it because it is the way things are going. Further, if you want to become an international business, B2B is a mandatory thing. I think B2B will come much earlier as in the rest of the world than B2C. Also, B2C assumes that every customer has a computer at home which is not true. Most businesses have computers. I think B2B will take off in India in the next 2-3 years. B2C will take a much longer time.

Are you settling for SAP?

We have decided to go for SAP. We are doing the preliminary work. It is not enough if I do it. My customers and suppliers all have to do it. All my factories are already linked via VSAT. But we don't have the ERP system. We have been for long time on UNIX and Oracles. These are stand-alone systems. They sort of serve the purpose alright.

ERP, some say, is not very effective ...

When you implement an ERP system, it takes away a lot of your leeway. The organisation has to become disciplined. If anything has to work smoothly, you have to follow a system. If a salesman is sitting in Guwahati or Tirunelveli, the minute he switches on, all screens should look alike. So that if he moves from one place to another, he does not need to learn everything from scratch. The company will be totally standardised. Standardisation is very important.

Will integration via computers get rid of people?

No. If the system gets standardised, it will make a lot more information available online not only for yourself but also to suppliers and customers so that things can become a lot more effective. It will not get rid of people. It will, in fact, make people do things they ought to be doing.

The current environment - what does it portend for your company which has been in existence for long and is doing fairly well?

I feel India is well poised for international business, especially in primary conversions such as castings, forgings, machine forgings, bolts and nuts and things like that where you convert something into finished products within your factory. The problem comes when you have aggregates, where you have to do a lot of assembly work. When you do this, you have to take into account the inefficiencies of all your suppliers. If you are doing a big assembly of many parts, the inefficiencies of all suppliers will come on to your table. You don't know if your are going to be competitive. In my case, I buy steel and make nuts and bolts and then ship them. You take castings. You buy aluminium or grey iron. You make castings or machine them and send. Take forgings. Same thing. The amount of inefficiency that can creep into the system is very limited. So, you are more competitive in terms of international trade. That is number one.

Number 2, fortunately for us we don't have any joint venture partner telling us what to do, what not to do, where to go and where not to go. A joint venture partner was alright for a period of 30-40 years from 1950-1998. At that time, India was a very different geographical entity. When you want to export, you suddenly find your territorial rights curtailed and you have a problem in going international. This is being felt by all or most of JV companies. Standalone Indian companies have got a lot more flexibility and leeway to do things. That is why you find in the TVS group maximum exports are being done by people like SFL, Sundaram BrakeLining and Srichakra Tyres - all Indian companies and 100 per cent locally owned. If you take companies like Sundaram Clayton, Lucas TVS, Brakes India or Wheels India - all collaboration companies, exports are less.

You have always maintained that if an Indian company has to become an MNC, it should not have a JV partner ...

How can a JV company become an Indian MNC? It is an oxymoron statement. Actually it is self-contradictory. You can't do that.

At what stage are you to become an MNC?

What is an MNC? First of all, you must have different locations of plant. Second, you must be able to have the ability to transfer cash throughout the world so that you can take cash out of Mexico and put it in Brazil. Flow of cash between nations is the sign of an MNC. We are today an international exporter. We are not an MNC. There is nothing wrong with it. There is nothing wrong in being a domestic company as well. Nearly 90 per cent of American companies are domestic companies. They don't export at all. There is nothing wrong in being a domestic company if your are a good one. So also there is nothing wrong in being an international company if you are a good exporter. But there is no virtue in becoming a multinational company. Finally, what the shareholder wants is that your company does well, is honest and takes care of shareholders' interest.

The worse thing that can happen to a company is when people go on an ego trip and say that I am going to be an MNC just because I want it to be an MNC. There must be some rhyme or reason as to why you want to become an MNC. SFL has gone from a domestic company to become an international company. We are exporting quite successfully now. We are looking at possibilities of becoming an MNC. We are looking at whether we could buy a manufacturing base or whether we should buy a company which has got technical capability of marketing, handholding and warehousing. Whichever is optimal, we will have to do it. But there is no hurry. I think I need to be very clear in my mind as to what exactly I want.

Don't you see a sense of urgency for doing that this year? You need a tax shelter. The tax liability is very high now.

You can't always chase the shadow. I find at one point of time or the other when you take rest, it catches up with you. Pondicherry is gone. I don't want to do it just because ... the worst that can happen is to panic and to save tax do something and regret it later saying it is worse than paying the tax.

Have you got any time frame for doing this?

I have not put any time limit. I don't want to be under any pressure on this. Nothing has materialised so far. I need comfort.

In what product segments are you contemplating acquisitions?

I am looking at all products segment. I am looking at fasteners, powder metals, oil pumps and water pumps because Autolec is now ours. Originally I thought I will buy a manufacturing company. This will then restrict me to either fastener or powder metal or oil pumps. If you take over a company which is very strong in marketing, technical handholding and warehousing, then you can sell any products through that conduit. We are looking at options - what is best. Because our product portfolio has also increased. So I can't go on buying companies for each product.

What could the ideal destination for acquisition?

The best destination you can think for India is the U.S. We understand the business systems. Secondly, there is no market that is bigger, better and more informed than the U.S. It is also under tremendous cost pressures at this point of time. The image about India in the U.S. is also becoming positive. Thanks to IT people who have contributed and who are also high profile, people don't ask where is India. India is slowly establishing a name for itself. People are now beginning to say if they are so good in IT, they must be having some other skills as well.

Are you looking at domestic acquisitions?

I need to digest Autolec now. Right now, sentiments are bad. The industry is doing very badly, especially in the automotive area. You need a certain amount of buoyancy. I need to carry the company along on acquisition. I have taken people out of SFL for Autolec. If you take over a new company, you need to spare staff. But it is inevitable. It is only a matter of time before SFL steps out. We started TVS Lanka. We are now looking at West Asia. I have been telling that we have to look at south-east Asia more closely. At no point of time, should you be under tremendous pressure to do this.

I also feel that for all TVS companies at one point of time or the other at least 50 per cent of their revenues must come from non-rupee resources. Only then will there be stability.

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