The continuing demand slump in Europe has forced German truck-maker Daimler AG to turn its eyes towards Asia, with its new business model envisaging a two-pronged push from Japan and India. Albert Kirchmann, President & CEO of Mitsubishi Fuso Truck and Bus Corporation and Head of Daimler Trucks Asia, is determined to see this new strategy through. Dr. Kirchmann, who joined Daimler Benz AG in 1984 as a trainee, was appointed to his current position in 2009. He and Marc Llistosella, Managing Director and CEO of Daimler India, spoke to The Hindu last week at Daimler’s Chennai plant after the rollout of the company’s new FUSO range of trucks. Excerpts:
Could you elaborate on your Asian Business Model?
Kirchmann: It will help us work more efficiently and save costs. Let me give you an example.
If you take a platform that is used in Japan, bring it to India, change it a bit, and then source it from Indian suppliers. Then you compare the costs of the parts here and there. If the part is more competitive here in India, then this provides us with a different alternative. Either you switch over to the suppliers here and leverage the lower costs or you do a two-sourcing strategy. The latter is what we have done.
So, this whole business model results in our spare parts system, for 150 markets, which is the number of markets we are in, becoming much less costly.
On the top line side, which is the bigger level, it becomes lot simpler. Today, we have three product lines; it is a comprehensive portfolio. So it is not a case of emergency that we are now introducing new ones. But by doing this consolidation we now have an unbeatable portfolio. We have now not only a higher product portfolio but also a complete one that can cater to all segments. It’s just like in a clothing store, the more number of sizes you have, the more number of options the customers get.
This Asian strategy, in short, is the culmination of an outstanding product line which will bring additional value, additional customer benefit and additional market share.
How does the company’s headquarters view Asia as a market and this Asian strategy? Are there any expectations or pressures?
Kirchmann: Well, there are no pressures. But expectations, yes, many expectations. There is a lot of interest as well. When we built the ‘Daimler Trucks Number One’ programme, which is our operational unit programme, we had decided that we should no longer think what one specific unit could do for itself but how it could contribute to the whole picture.
So, one integral part of this programme was the Asian business model. To answer your question in short, this strategy is of huge interest to our headquarters. This was the first work package that was quickly and completely decided by our board of management. For everybody, Asia obviously made complete sense. This strategy will count as our global home run.
The board understands that this strategy is simple at its most basic level, but it is not easy to implement.
What kind of a challenge was it in achieving such a high level of localisation?
Llistosella: A very deep, diverse knowledge about the processes involved and very clearly defined targets, without any exception, were the key. The problem is that the market here is in danger sometimes due to its penny wise and pound foolish nature. The mentality here is that you save five rupees for the day, but lose a crore for a month.
You have a situation sometimes where you ask one thing and they deliver another. Therefore, you need supplier management, both before and after procurement.
To establish a permanent, revolving process which makes sure that the quality stays throughout, you need a supplier base that is almost entrepreneurial in that they believe in their businesses. This comes down to the person in charge. If the supplier is lazy with a failing and fading attitude, he will never push through an improvement of the processes. That’s why we sit down and work with the suppliers; I sit for the whole day with their CEOs, hammering out what I want.
Some suppliers have great attitude such as, for example, Brakes India. The top management came here and the CEO, also a shareholder in some form, was sitting with me for six hours to understand what the technical problem was in his product. That is great attitude.
Of our 224 suppliers currently, 80 per cent are internationalised, have the right attitude, good processes, and are keen to learn; then you have 10-15 per cent who are so-so, and you have 5-10 per cent rotten of whom you really ask: why?
There are simple things which ruin localisation plans. Suppliers here sometimes spend huge amounts of money on equipment, but then operate them with untrained people. Their attitude lets them save a few hundreds in one day, but will make them lose thousands in the long-term. For localisation, we destroyed this attitude and made the whole thing successful.
India has free trade agreements with many countries, to some of which you will export the FUSO brand from Chennai. How much of your strategy is hinged on these FTAs?
Kirchmann: Well, the answer is yes and no. It’s a factor in calculation but it is not the driver for the network. We are in 150 countries, with 19 assembly plants partially due to inbound tariff or tariffs. We are monitoring this network on an on-going basis. The Philippines is one example where we closed our assembly facility down because of the FTA between Japan and the Philippines.
So, for us, coming into India is to enlarge our footprint rather than for the FTAs that India has.
If you look today, Japan is in at least five negotiations, TPP, FTA, EPA and so on. So, there will be a lot of dynamics; we are a fan of open competition as it keeps the system competitive.
We could take the stance that let Japan be more of a closed market for commercial vehicles, but we don’t do that. Tariff barriers are just one element, the bigger aspect that we experience are the non-tariff barriers. So for your question, the tariff barriers are only a driver for local content and assembly plants, it is not a driver for our network.
What could be the limiting factors that would not allow Chennai and India to serve its function as an export hub?
Llistosella: Let me give you an example. We come to this auto hub here (Oragadam) and all the players together invest Rs. 20,000 crore. The surrounding infrastructure and the roads in this area are an insult to investors. It tells us that they don’t care whether we come here or not. As for ports, it is not only a question of capacity but also the clearance time. While so far we do not see a constraint in Chennai becoming an export hub, these problems make one wonder. Politicians need to get their act together.
Kirchmann: Well, I hope the infrastructure does not become a limiting factor as our volumes grow. It is simple though. We would not choose India as an export hub if we believed there would be repeated problems in logistics because of infrastructure. We strongly believe that the capability and the money are there in India.
A few months ago, Daimler’s global HR head said that if Daimler wants to be successful on a global stage, it needs less Germans in its management. Yet, your Asian strategy is dominated by European heads. What do you make of this?
Llistosella: Let me first clarify on this. We have Punjabi, Tamil, along with other non-German people in the Indian management.
There is also a pure economic reason that we have Germans here in the beginning. Experts cost you a lot of money, so if you invest enormous money, you would invest in the most high-ranking so as to get the most bang-for-the-buck in the beginning. It does not make sense to invest in low-ranking people straight away.
However, the percentage of Germans heading the Asian strategy is still small, though there may be a lot of Europeans. We try our best to do that. But definitely, you are right; I would like to see more Asians in the global headquarters. When you have somebody in the headquarters and he is from a little village in Germany and he tells you how to do business in Asia, it becomes a problem. When this happens, I would love to see more Asians go to Germany and open their minds. That would be very helpful. I would also love to see more Indians in the headquarters, maybe in the role of the Chief Information Officer.
Kirchmann: As Marc said, you are right from a Stuttgart perspective. But as you leave the centre, you will see less Germans in our upper management. Every time you start a greenfield operation, like we have in India, you need a good mix of the local as well as people who are connected to the headquarters.
We are seeing more non-Germans as successors as well. We need an international work force, and, more importantly, we need the best person for the best job. The top guys here at our Indian operations will soon go on to occupy higher positions in the upper management. I don’t think it is right to assign a certain number of percentage for each country.
I admit that yes, we did not have so much Indian in our Asian strategy, but it is not so much pure German either!