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Updated: June 15, 2014 23:41 IST

Urbanization drives our industry

Ramnath Subbu
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We are very optimistic about the growth and potential of India, says Kone Corp CEO

Elevator major Kone Corporation has taken the fast lane to growth and from being a small outfit out of Finland, the company is today the second largest elevator and escalator manufacturer globally. India is the second largest market for elevators and Kone Elevator India has achieved a leadership position here.

In an interview with The Hindu, Henrik Ehrnrooth, President & CEO, Kone Corporation spoke on issues confronting the industry and Kone India’s strategy to stay ahead.

Edited excerpts:

How has Kone’s strategy changed, given the economic meltdown and the concomitant slowdown in economic activity in the last few years?

In the last few years, we have become the fastest growing elevator company globally. From being a small player in Finland some years ago, we are today the second largest globally.

Our key strength is our strong position in key growth markets in the world including India which is the second largest market in the world.

As regards the slowdown, we almost have a three-speed world today. There are some very fast growing Asian markets—China, in particular, continues to grow very fast and is clearly the largest market in the world. The rest of Asia Pacific has continued to grow fast and India was growing at double digits till the recent slowdown. Europe has been very difficult and North America is only now recovering after a very difficult period. So you have many different situations.

What we started to do when markets started slowing down, was to look at markets in a more and more granular way. How do you find opportunities even in a difficult market? Interestingly we found that even in a difficult market, there are certain segments and geographical areas that are doing much better and those who have a better granular understanding of the market will be able to capture that growth.

We used the same philosophy in key growth markets and with a granular view, we knew what the growing segments are, the areas where we have to put emphasis and where we needed to make sure our product competitiveness had our resources so we could continue to grow. That helped us grow faster than our competitors.

India too witnessed a delayed but significant slowdown which was economy-wide. How has that impacted business prospects here?

The orders received and sales continued to grow at a good rate here. But in the second half of last year and the beginning of this year, growth slowed down and the drivers of that were the ability of our customers to access financing and it also affected apartment buyers.

So the tight financial situation has impacted the ability to finance projects and the general economic uncertainty has postponed projects.

But we are very optimistic about the growth and potential of India. The key growth drivers are urbanization and a middle income consumer group which is growing in number and requires apartments.

What is the addressable market in India for elevators and escalators and given its size and importance, what are your plans going forward?

There are no precise figures but India is clearly a 40,000 units per annum plus market and the residential segment is clearly the larger part of the market, which is typical for a growing market with a lot of urbanization.

Last year, globally, we delivered 120,000 units and received orders for 140,000 units.

Globally, escalators are an important but [are a] smaller market, accounting for 10 per cent of the elevator market.

Our factory in Chennai delivers products specifically for the Indian market but we decided to build a new facility and expand operations to cater to our future growth.

The new unit will first serve the Indian market and also the nearby geographic areas. India is increasingly becoming an important hub for us.

In India there are problems in the real estate sector, which has seen growth being impacted. What factors have to change going forward to provide an impetus to the sector?

Almost all fast-growing markets have phases of growth in different segments. Now, we have a lot of growth in residential segment and we will probably continue to have that all the time .

Then as business turns up on the commercial side, that will start to grow. So it usually tends to go in cycles. But it is important to understand which segments to target for growth. That is where the granular understanding of the market comes in.

What about the competitive scenario in India? There are established global players like Otis, Schindler and Mitsubishi who are present here. What is Kone’s strategy to take on competition?

We are the market leader and are continuously growing faster than the market overall. We are the market leader in China, India and several areas of Asia Pacific—all key growth markets. Given our size and market position, we have to offer products throughout the spectrum.

There are three things you need to be a leader in this industry—a product that is competitive, a geographical footprint because it is a very local industry where customers are local and you have to be able to install and service locally and lastly people development. It is a fast growing industry so you have to find competent people and that is probably one of the most difficult aspects of maintaining good growth.

Do you see any green shoots or signs of a sustainable economic recovery in India?

What is interesting is that growth here slowed down over the last three quarters. But despite the uncertain economy and tightness in financing, the residential markets continue to grow. So there is a lot of demand and we believe that in the Indian market, urbanization will continue and urbanization drives our industry.

I think better business confidence in India will start driving growth towards the end of the year. It is important to gain confidence locally for developers to develop residential projects that consumers can buy. That would be a key growth driver and clearly productivity of industry overall is dependent on good investments. The way we develop our operations is that we look at the long-term growth trends and develop them accordingly. You have to look at the long-term and we see a strong long-term potential for the Indian market, which is why we are committed to continue to invest here.


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