You have been at the helm of
India since January 2014. What kind of challenge have you faced in this role and how did you deal with it?Let me start off with a personal challenge and then go on to corporate challenges. On the personal side, I am a mechanical engineer. I understand machines; that’s my job. Therefore, understanding the new type of farm equipment from construction and mining equipment was not a challenge. It was a smooth transition.
I was hired to create a new company in India. Traditionally or rather conventionally, CLAAS operates in this internal supplier and buyer company concept they call it the Product Company and the Sales Company concept. In India, they did not have this concept for three decades, and needed somebody who could set up a new entity. For me, that was not a challenge because in my two previous organizations, there were two mergers, one acquisition, and I was a signatory to those. Therefore, I knew how to light up the midnight lamp and go through legal and board matters and such requirements. Hence it was not a speed breaker. Understanding applications etc., considering if one has a strong team around, it is easy to learn everything. Therefore, there were not any personal challenges. I worked in India, I knew the Sri Lanka market quite well, along with its adjacent countries, and worked well with people with different accents in Southeast Asia and Europe.
Corporate challenges were good. CLAAS agriculture machinery was devoted to selling when the entity was created, meaning selling servicing, marketing, brand promotion, machine servicing, and finding out about machine parts. When I joined the company, sales was one department along with the marketing and service teams. There was a lack of structure. We used excel sheets, faxes, and emails, etc., for the ordering system. We were not aware of customer sentiments about our machines. We were dependent on the layer of distributors that were separating us from end customers. Therefore, we needed to set up processes and systems. So I took up the challenge as a task internally. We set up a perpetual customer satisfaction survey. If you were to buy a machine from us, 30 days after purchasing a machine, a third-party company would call you to determine your buying experience. One year after the warranty period, the same company will contact you for your owning experience. The new process was via systems, called the dealer management system. The dealer management system maintained bills, records and warehouse information to record customer information. To support customers, we reached out to them to understand the renting business. We identified that the customers had a dependence on a layer that divides them without getting coated on farm laws. There was also the case of middlemen. We understood that if they determine the destiny of our customers, then can we disrupt the process? Therefore, our team got together and we created a simple app. It works in a simple way. Once the farmer raises a request for harvesting, one of the many contractors gets it. Basically, the closest contractor takes up the request. Everything, apart from the payment, takes place on the app. We brought about ease of doing business.
This was not the real challenge though, that came from Chinese machines. These machines came at one-third of our machine price that barely lasts for one and a half to two years. On the other hand, one of our first machines was built and supplied to a customer in 1991, and that machine still works! Hence, the Chinese machines were way below the requirement of a long-term holding. For example, at the Custom Hiring Centre (CHC – This is a government-sponsored rental store where one can keep agriculture machinery suitable to a particular area. It is a rental store subsidised by the government), the minimum holding time for a machine is six years. We got similar challenges from other imported machines coming in at two-thirds of a price. These were Japanese brands with the issue of longevity. Therefore, it was a job for us to create an understandable language to owners of the machines regarding return on investment, not just in one and a half or two years but over a protracted period. This happened after I joined, and therefore it was necessary to hold ourselves in the market.
Typically, when there is a drought, customers switch to cheap machines. When there are rains, customers prefer more expensive and lasting machines such as CLAAS brand. Hence, that was one of the challenges which we continue to fight.
Our recent challenge was posed by Covid-19. Our business is a physical contact business; we touch machines to service them and feel the machines to understand the parts that need repairing. We had to travel hundreds of kilometers and meet the customers to demonstrate and show our products. COVID-19 severely restricted this aspect. We also work through trade associations with the government to bring this into essential services. Farming is a crucial service, but surprisingly, farm equipment use and movement were not essential. Together with the industry, we worked with the government to allow special permission to move machines. But the questions remained on how to launch a new machine or demonstrate to the customer. Due to Covid-19, we learned that there was almost 100 percent increase in smartphone usage in rural areas. Therefore, along with our strategy team, we created a virtual launch platform to connect with customers, government parties, and universities. You can search for our launch videos on YouTube and experience the launch of a machine virtually. We have launched three to four machines virtually and have received positive feedback. The machines are now being sold to customers and are in fields.
How’s been the ongoing year in terms of business for CLAAS in India considering the impact of the Covid-19 pandemic?
A grain of rice or a grain of wheat does not know what Covid-19 is! It will grow when it has to grow. Hence, such grains will continue to grow. The farmers continued to put all their efforts into growing the paddy. For example, the paddy sowing was more than 18 percent over the previous year, hence ensuring that 18 percent more the farmer had to get it harvested. The demand increased because of higher sowing. Secondly, the flight of labour meant that the same grain of rice had to be harvested with no manual labour available. In India, the average farm mechanisation level is 50 percent. It is higher in the South by 80 percent, around 40-45 percent in the East, and approximately 50 percent in the North. Now, if there was 50 percent mechanisation, then the other 50 percent was missing. And you could not get manual labour. Hence, the only solution was to get more machines, which added fuel to the demand. Thirdly, good rains added to the demand in machines. The supply line could not keep pace with the demand all through Covid-19. But our factories are not fully utilised because of limitation of the supply chain. Look at the paradox! I cannot sell fast enough, and I cannot build fast enough. The factory has got capacity, and we can build more, but we cannot because the supply line is missing, and that is the impact of Coronavirus on the input side.
What is CLAAS’s market share and geographical spread in the Indian market?
CLAAS is a specialist company; we choose a market where we know we can bring about a difference. For example, our top model range Crop Tiger is a household name with many areas. Basically, the geography and the type of machine are chosen by a specialist, not undermining generalists. If you have different business models, you can make machines at a low cost, sometimes low quality. However, we specialise in paddy harvesting; therefore, wherever there are wetlands and paddy, CLAAS comes to people’s minds. Today, we are actively growing and are number one in South India. We have more than seven thousand active machines helping farmers in the south. In the east, we are not the number one, and hence have a scope of growth. East has a lot of paddy growing in many wetland areas since it is a coastal area. Another interest area for growth is the Northeast.
What kind of manufacturing capabilities and capacities does CLAAS India have?
In many countries, CLAAS centres on its own and goes for an organic growth. In India, we came in through a joint venture with Escorts in the early 1990s. Hence we were headquartered in Faridabad for the longest time. At that time, the Germans learned about the country, culture, and the country's real requirements. We brought in machines from overseas and eventually started building machines. We identified that the true requirement was to offer smaller machines. At that point in time there were no mechanised harvesters. A few Punjabi farmers would buy second hand machines of CLAAS. Back in the day, nobody had seen a mechanised harvester. Hence, we pioneered the concept of mechanised harvesting with Escorts. Ten years later, we separated from the joint venture and built the Greenfield factory. This was the Faridabad factory. Then we built a second factory in Chandigarh, on the Ludhiana road, and moved the Faridabad set up there. The Faridabad factory was designed to build about a thousand units every year whereas this was double the capacity in this place called Morinda, Chandigarh. All of our manufacturing and production takes place in our factory at Morinda.
What is the rate of localisation of the equipment manufactured in India?
I would say close to 95 percent. We import only subcomponents; for example, a gearbox, to drive the machine, the rubber chain attached to the machine, is made by an Italian company, which has got a factory here in Chennai. So, the five percent of imported subcomponents are part of assemblies.
How do perceive the role of India as farm & agricultural equipment market in CLASS’ overall global scheme of things?
We are minuscule in terms of the share of revenue, as per what we do in India. But CLAAS does not go to a country from only a revenue point of view. Otherwise, they probably would have operated in France, Germany, and then done with it. What it does is that it creates these manufacturing centres of excellence where a certain machine model is produced for the whole world. If you take Crop Tiger as an example, we are the only country that produces Crop Tiger. So, the made in India Crop Tiger 30 and Crop Tiger 40 go to Southeast Asia, Middle East, Africa, Central and South America. The other example is this small machine - Jaguar 25. We are again the only centre that produces Jaguar 25 here. This is a good strategy because the centre of excellence means that the economies of scale are met for that factory. For example, the German factory is meant to build bigger machines and be their own excellence centres. So, the big machines like Jaguar 850 costing two and a half crore or so are only made at one factory in Germany, near our headquarter. For example, there are other machines we have, an acquired Chinese company that produces specific machines that are only made there. You will find our machines working in Punjab or Maharashtra in a big way, which is the straw baler which bales straws and compacts and keeps it in a square shape. This is only made in the Chinese factory. Therefore, its significance is very different. If you look at the financial side and look at it from a grand manufacturing plan, these are very different perspectives.
A few global players operating in India are also building India as a manufacturing hub for exports. Do you see that happening for CLAAS as well?
Along with a joint strategy group, we studied the Myanmar market and found out that the application, the average land holding, the structure of farming, crops that they were growing was quite like West Bengal or Orissa. And we understand these markets very well. Although I am not accountable for the business, I have taken up the responsibility because I feel there is a potential for selling more than a hundred machines there. Currently, we sell about 15 or so. So, I am supporting a different country in a different part of the world to understand their applications to make machines and sell to them. That is part of a smorgasbord, a mixture of talents and best practices; basically, it is about understanding of a particular machine that you can apply anywhere. When we wanted to launch the Jaguar 850, we had a German team from a different territory to study the market for us and tell us the right and wrong, and then we took further steps. So, the short answer, yes. We are keen on pushing exports to a high level!
Farm mechanisation will play a key role in helping India meet its agricultural production requirements. But how would you analyse the socio-economic impact of increased mechanisation in the view of abundant farm labour supply available in India? Also, Indian agriculture continues to be dominated by small farmers, whose smaller landholding and weaker economic status is a big hurdle to ownership of high-value agricultural machinery.
I will start by making one small correction; the farming sector is facing severe shortage of manpower. It’s an inverted pyramid – meaning there is a big shortage of operators, technicians, then coming down to the semi-skilled people (who support the activity of milling but are not specialists) and then, there are the unskilled (who can only be used for certain activities). Hence, if you start from a shortage, you already have created a natural pull for mechanisation. But since you used the term socio-economic impact, it is the social part that is creating the pull. Economy too fits into the whole jigsaw puzzle, especially when the farmer has a small farm holding, the problem of cash flows, etc. On the social aspect, labour is not the only problem. The average age of farmers is also going up. A farmer’s son today does not want to become a farmer. Today, Uber drivers, liftmen, taxi drivers in Mumbai, most of them come from a farmer family background. In fact, smaller farms have a higher average age for farmers. The educated farmers would want to further study ahead. The drudgery here is about standing in the hot sun at 46 degrees temperature, with one’s feet and head burning, physically bending down all day, and working in chopping. This is creating a societal pull. General people may not understand the realities of such farmers. The government initially tried to help with subsidies but it discovered that it does not help to subsidise the machine because a farmer is not interested in buying a big machine only for a week’s activity. They found out that it actually helps to finance the layer, which is the key to driving the farm mechanisation – the contractor. A contractor is a farmer, a little more enterprising. He becomes a farmer and a machine owner, and rents out to those farmers in need. This process increased farm mechanisation. Especially in the South, it increased to 85 percent. But it was not increasing in other parts of India because buying a harvester was becoming an issue, so the government came up with the concept of Custom Hiring Centre (CHC). They came to understand that if you fund an individual farmer or individual contractor, he can change for sure, but not a quantum leap. Therefore they built some 18,000 CHCs. It is called ‘custom’ because the equipment selection kept in this rental store is selected by a group of local people like the owner, the Deputy Commissioner, etc. They select based on suitability in the area. They make a selection, and the government gives 45 percent or 50 percent average subsidy to them for three years. That is a rental store, like a ration shop, which has a list of machines, rates listed by the government. This led to a big change in the country. Today, we own 35 stores operated by a franchise, our own dealer who operates. Hence, the big change that the government has brought about is through these sponsored rental stores. We are currently trying to implement the same with the government of Bangladesh and the government of Sri Lanka, which are, several years behind India in terms of mechanisation.
With regards to the training, we train the semi-skilled via learning centres. CLAAS runs seven Learning Centres in the country called CLAAS Academy. We target people with some understanding of operations. For example, a tractor driver can be upgraded to operate higher and sophisticated equipment like a combine harvester. Our tie-up is with six universities. The arrangement is that the university gives the premises, and we furnish our cut sections of motors to explain how to repair. We have a wall chart, an electrical diagram, and a hydraulic diagram. We teach the students as well as the faculty. We are also allowed to train people from outside, operators, technicians and our own dealers. Hence, we contribute in that way in terms of people's skill development through these academies. Last month, we inaugurated a brand new Academy of our own at Tumkur, about 70 km from Bengaluru.
What are your expectations from the Government here? Do you see real merit in campaigns like ‘Make in India’ and ‘Atmanirbhar Bharat Abhiyaan’?
I think the government is playing its role as an enabler very well. However, there could be some room for improvement. There could be uniformity in how agriculture is treated by different state governments. Agriculture is a state subject; so the government only creates the models and a model law or model rule like CHC. But the state government is free to make changes. For example, in the first year of investment by an investor in its centre, Andhra Pradesh gives 45 or 50 percent subsidy. Karnataka gave 75 percent in the first year, but the uniform part would actually help equipment manufacturers more because then we understand how things function well.
When it comes to a farmer of Andhra Pradesh or Karnataka, or Punjab, it does not matter because he is getting what he’s been given by the state government. The program of subsidy is one good example of why this uniformity is required in certain things. There is no national repository where we can put our machines, register our machines under a subsidy registration called subsidy enlistment, and the state government recognises it.
Other areas where we could see an improvement from the government is in testing and equipment. When you want to participate in a government tender or participate in a subsidy program such as the CHC, enlistment is required. The number of testing centres in India is low, and the queue is long. It can take a minimum of six months to one year to get equipment tested, but the government is taking action to resolve it because there is an increased number of testing centres. The demand for testing centres is also increasing. In many cases, the state government and central government work well. Despite politically different ideologies, when it comes to farming, it is important for both governments to work together.
CLAAS is already part of the Atmanirbhar Bharat campaign. It is a German company that is completely Atmanirbhar in India. Even the most sophisticated machines that we have are managed by us. There’s nothing that an Indian cannot do there, but there are certain limitations that it brings about, bringing in new technology into the country. If you are Atmanirbhar and have made the machine in India, there is a certain investment that you have made in India. There is a period by which you will recover your investment. If we focus on bringing new technology, either made in India or elsewhere, it will not matter if it benefits the farming community or a farmer. We must proceed with such technologies.
Where would you like to see CLAAS three years from now?
In terms of market position, we would still like to proudly say that we choose a market where we can make a difference. We currently have not made a difference to western and northern India. My ambition is to be recognised in these regions. In South India, we have been striving to hold on to a brand perception of number one. It is not just about market share, but it makes a lot of difference. We have turned villages from poverty into economically independent entities because of how we have worked with them and supported them and machines. Operators are now machine owners; these people are now field owners. Therefore we would like to continue to hold this position of brand number one. Today, we are not number one in north and west India. We are still recognised in those areas at the moment. So, in three years put them together, I would like to see CLAAS as the number one brand in these regions. A few more turns are required to be able to get a very even colour and even surface.
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