When Asian Paints bought Berger International Ltd, Singapore, it acquired a presence in eleven countries and then faced every shopper's dilemma. How to fit the new buy into the old cupboard?
But integration is not the only management challenge facing this Mumbai-based homegrown company. As it morphs into a multinational, can Asian Paints export its award winning culture? Or should the question be, should it?
I have begun my travels for a long journey. It all started with a spark of ambition and the dream to grow beyond the set boundaries, and the past year has been arduous and exciting.
Our international business changed from managing a group of 350 people in a few countries to being responsible for the careers of over 1,350 across the globe. Earlier, we did $15 million (about Rs75 crore) worth of business outside India, which was trivial, but after buying Berger International Ltd, Singapore (BIL), our global sales jumped to nearly Rs 500 crore.
Our Indian business is about Rs1,600 crore. Overnight we became much larger, more successful, leaders in ten countries. And managing this is far more complex.
Cleaning the books
By the time we completed the acquisition (a 50.1% stake in BIL), it was November 2002. We were the first Indian company to be listed on the Singapore Stock Exchange, the first Indian company to successfully complete a partial public offer there.
On completing the transaction, our first priority was the issue of compliance. Did we have any skeletons in the closet? The fear was there and it had to be allayed. So consolidation of accounts, finalisation of accounts, announcements of the first results, digging up books, working day and night with bankers, lawyers and auditors went on.
We visited BIL units in other countries, BIL subsidiaries, and carried out whatever due diligence we could. We had set our standards and had decided that if there was something to clean up, it would be done before the next year. That was the focus during the first few weeks.
Quick early wins
Only after settling technical matters did we get into management issues. Suddenly the scale and scope of our organisation struck us. We were now present in all five continents of the world, in 13 out of 24 time zones, in 22 countries with 23 manufacturing facilities, i.e. an Indian multinational.
We now had to deal with new brands, new people and new customers, and most importantly, bring in complete integration. People came from different backgrounds, different cultures and different languages. How does one tackle the people issues? This would be an ongoing process. But first the target was operational efficiencies.
The hallmark of Asian Paints has always been operational efficiency. We have stringent parameters and high standards for every operational activity: be it distribution, sourcing, marketing, manufacturing, or improving the service level.
We are also meticulous about balance sheet management, which comes very naturally to us. The problem is, you can't acquire a company and impose your processes immediately.
We had to tread sensitively and protect the identity of Berger in terms of brands, units, people and so on. But subtly we brought in the underlying theme that operating plans (OPLs) are everything.
Let's face it: creation of shareholder wealth is paramount, and delivering OPLs is the way ahead. For the first three months, P N Khanna, one of our most seasoned operating heads who is now BIL's CEO, travelled to all the units spreading this message.
Then Jalaj, my son, would go in and talk about values and other corporate issues because somewhere, people also need to connect and belong. By January 2003, the OPLs were approved. By then we were beginning to understand BIL's strengths and weaknesses.
BIL had seen four chief executive officers over the last five to six years. Critical data on how many brands BIL had all round the world was not available. Managing intellectual property became a key priority after the acquisition.
Benchmarking best practices
We started collecting data about the brands in every region and began systematically registering all intellectual property: logos, trademarks, designs, etc. The Berger brand is well recognised across the world but we realised its power when we signed a licensing agreement in Indonesia.
At the same time we began benchmarking best practices within member countries and companies. For example, ISO documentation in Jamaica is excellent. Berger has a fabulous reporting system: all sales reports are in on the first of each month and the P&L (profit and loss statement) is ready by day eight.
Management was an issue, results may be bad but reporting processes were in place: BIL made a loss of S$11 million in 2001, which came down to S$1 million in 2002 and hopefully we should make a profit in 2003. On the marketing side, there are some gaps in the product range, some lapses in positioning in the market place, but we are working on this. Place Chart Hear
Emotional integration
You can't go into a company and be seen as only emphasizing marketing because along with products and brands, there are also customers and employees. After an acquisition, you have to address the emotional issues, reach out to people and convince them that you are committed to growing the business, and servicing the customers. And that you need their commitment.
To address these issues, we held a Global Managers' Conference in February 2003 attended by senior managers and unit heads from 23 countries. When individuals realise they face the same problems as others, they start exchanging ideas.
Out of this forum emerged a spirit of sharing problems and solutions, a feeling of belonging to a group that is present in various markets and the collective benefits such a group can bring.
Everyone had a lot of questions about what is Asian Paints, what does Asian Paints stand for? What is expected of me now that I am a part of Asian Paints? Suddenly we realised we are a multinational and responsible for managing the careers of our people.
Earlier Asian Paints was not a multinational in that sense. Can an Indian company become a multinational? There are so few role models, except maybe a Ranbaxy.
People need a sense of belonging and we have initiated various processes to ensure that it happens smoothly. During the conference, we defined four guiding principles for business and success: Responsibility, Entrepreneurship, Continuous improvement, and Trust. These four values determine our actions in all markets: those in which we are leaders and others in which we have aspirations to grow. All these four values are sacrosanct and the true representation of what we would like to stand for.
Trusting people
Local expertise is critical in the paints business. BIL had good human resources and post acquisition, we had to ask only about 35-40 people to leave. I want people at BIL to feel that we are adding value, but at the same time we will not compromise on growth.
Topline has to grow, costs have to come down, balance sheet has to improve, and for us inventory management is absolutely critical.
At the same time, we are not sending Asian Paints people all over. Not one Asian Paints person has been sent where there was no position, and we have not created any new position. The chief executive of China had to be replaced because BIL had earlier closed the factory due to some dispute.
We resolved it and restarted the factory. Asian Paints deputed one senior manager from India to head its operations in China. The remaining employees are all locals. At Singapore, we sent an Indian manager as the unit was operating without a CEO.
Similar was the case with our operations in Myanmar. These are the only employees being seconded from our Indian operations. I feel that local talent is good and it must be disturbed only if they do not produce results.
Paying the price
At present, the HR cost is a little high and actual growth is low. But the trade-off is clear. To grow we need people. It is better to carry these people as they are good. They are the people who will be there for 20-30 years and will make us successful in their local market.
We can give them direction. In every unit I want five to six local champions with ownership: one each for marketing, back office, finance and accounts, production (manufacturing), supply chain and sales.
We have to invest in locals -- fly them into India or any other place where we are market leaders to help them understand why we are good. Though this exercise of identifying local champions will take some time, we have already begun the process.
Honestly, cost is an issue. HR cost to sales is about 15% to 18% and material cost is about 55% to 60%. So I am still attacking material cost, and giving people more time. I feel there are substantial savings to be gained from material costs.
We make about 220,000 tonnes of paint in India but now we will make 60,000 tonnes of paint outside India. So we can really exploit scale for the overseas units. We can send formulations from one place to another. We can bring down costs and manufacturing losses by introducing initiatives that we have implemented in India.
I strongly believe that it is better to be tolerant on people issues because we can be aggressive in cutting other costs. I know that if I get rid of 100 people, I can make a straight $1 million profit, but then this will paralyse operations, make people feel insecure and no other discussion will happen except who lost his job and who is next.
I don't want to be seen as a predator. Also, to operate in foreign markets, we need people who speak the local language, understand the culture. India provides only back office support.
Think regional, act local
The supply chain is critical and that is Asian Paints' biggest strength. We want to leverage our supply chain capabilities across BIL subsidiaries. Our operating model is 'think regional but act local.'
Whether it's brands, people or purchase, it makes sense for us to operate businesses regionally. We operate in five regions of the world ie South Pacific, Caribbean Islands, South East Asia, South Asia (SAARC) and the Middle East.
The South Pacific in spite of its size and irrelevance as a global player, taught us how to manage island economies. We have taken this model, and are now mapping it so that we can implement it across other island economies.
In the Middle East, we operate factories in the United Arab Emirates, Oman, Bahrain and Egypt, and are among the top five players. Here the model is different because the growth potential is much higher.
Also, though the management is local and follows local labor laws etc, human resources are mostly from India. South East Asia has been run locally from the very beginning. They have depth of talent and our market share is minimal.
Three years from now I am very sure we will have to start bringing it together but right now if we want to even double in each of these markets we require a lot of local decisions to be taken.
In Thailand the local resource pool is good but there is no marketing at any level so we are going to have two to three people devoted to developing marketing strategies. I want to do that in Malaysia and Singapore also.
In Singapore, the first thing Jalaj was told was to send a sales manager from India. It took him two months to convince our unit head in Singapore that Chinese dealers need a local who understands their language, who eats their food, celebrates their festivals.
Airmiles galore
Training people, sharing expertise requires a lot of traveling and we spend a lot on travel. Actually it will hit the bottom line in the current year but anybody who wants to travel,
I will not stop them. You want to see anything of Asian Paints, Berger anywhere in the world, go. Even people in the core business here, in Decoratives India, are considering taking technology from Berger units.
At present, I am not putting too much emphasis on processes because if a particular market needs reactivity, then it is necessary to take quick action. However, in the long run, it is not advisable and common processes are being instituted across units of BIL.
Intellectual integration
With growth being the focus, we need a system of information and knowledge sharing. This means transferring expertise from an Asian Paints overseas unit to a BIL overseas unit and vice versa.
Our focus currently is on understanding how the knowledge transfer will happen on the technology side. We want to create free flow of information across companies and that is when the benefits of integration will be seen.
We have formed lead technology centres and regional technology centres. There are five or six individuals in these centres, one each who drives regional technology, local sourcing, manufacturing equipment, and most importantly, can react immediately.
We would like to operate closer to our consumer rather than from the corporate headquarters. The lead technology centres, started out of the same concept as centres of excellence and will provide technology expertise in one specific segment.
For example, Dubai is doing good work on wood finishes so that is the lead technology centre on wood finishes outside of India. We also needed to improve our communication channels.
So if someone in Caribbean wants to introduce wood finishes, he has to get in touch with the regional technical managers who will then get in touch with the lead technology centre manager in Dubai and the communication will happen with free exchange of knowledge.
We plan to create a new position of Central Technical Head, someone who will be responsible for all these lead and regional technology centres. Then it will be centrally coordinated but competent centres will still prosper. Decisions will be taken regionally.
We are trying to build a knowledge structure borrowing from organisation such as Trans Ocean. This is an association of independent paint companies around the world who share marine and protective coating technology to all their partner companies.
Since we have subsidiaries all across the world, we can also exchange technology and all can access each other's strengths. Then in that sense we are multinational and still have our own independent identity.
Overcoming Indianness
While internal communication has to improve, so does communication with consumers. Frugal, value-for-money are virtues that we at Asian Paints understand very well and so do our customers. But in other markets, it is not a virtue and just doesn't work.
For example, in countries like Sri Lanka, they want aspirational, best-of-breed, and are willing to spend money for that.
We have access to the Berger brand in more than 70 countries, and the fact is that Berger has the potential to be much bigger and stronger than Asian Paints. Naturally we will leverage the Berger brand equity and -- combined with Asian Paints expertise in technology and marketing -- that's very strong.
But brand-building is critical and my problem is that after a few years I can't take Asian Paints everywhere, neither can I take Berger everywhere, so I may have to have a third brand. For that I have to focus on understanding how to build another brand.
We have to spruce up the marketing side. We are considering hiring an agency to understand each of the important markets and understand its growth potential because every market is so different in terms of consumer preferences, distribution channels, product choices, etc.
We need to fully understand how the retail channel functions, how wholesalers work, which channels work, what are the expectations of contractors, retailers, architects, and final consumers. How each brand -- corporate, premium, value for money, entry level or upgradation -- is received.
In the current phase, we are launching new products, so brand names become important. Take Apcolite, for example. It is the largest paint brand in India but can I build a brand like Apcolite in overseas countries?
On products, take for example, our operations in Thailand and the Caribbean: I find there is nothing similar in terms of brands. The can designs in both countries are so different. In the Caribbean we have brand names like 303, 404, 505, while in the Thailand we have a brand 'Jumbo', and this is just within Berger. Asian Paints have many others.
Brands that sell in Singapore don't sell in Thailand, and China has totally different brands. We also have to take a call about which are our key brands at a global level.
We are beginning to understand what are our corporate colours, what they stand for, whether yellow and red are acceptable in every market, blue in another market. That is going to cost a lot of money again. We are going to spend the next twelve to eighteen months understanding branding. At the same time, we have to keep pushing sales.
Fast forward
For the future, the direction is clear: technology, supply chain, marketing groups and HR. We have one group working on people issues: putting in place common group policies and practices, defining productivity benchmarks and improving performance across units.
The group will decide on issues like how many people are required: in branches, for dealer servicing, for sales, for distribution, administration, finance, IT, etc. On the financial side, we had assumed that a significant induction of capital would be needed but so far we have been able to generated finance from the business.
The first year was all about back-end efficiency. The next year will be about topline growth. In India we are growing at 10% and 12% and if whatever we have acquired is also going to grow at that rate, then what is the fun?
The author is Asian Paints Vice Chairman and Managing Director.
Powered by 
Published with the kind permission of The Smart Manager, India's first world class management magazine, available bi-monthly.
More from rediff