INTERVIEW WITH DINESH PALIWAL, CHAIRMAN, PRESIDENT AND CEO, HARMAN INTERNATIONAL by ACI What is the product range you have launched based on the scalable platform?
Our very first customer was Toyota which had never placed orders outside of Japan when we got their business. We launched Toyota ‘touch-and-go’. Based on a scalable platform, this was developed in India. Fiat gave us business worth $1.6 billion for both Fiat and Chrysler. Then we got Volkswagen which is worth $1.6 billion across markets including Asia. Tata, Hyundai and Kia are also our customers.
We have got another order from BMW for $2.2 billion — the largest order ever placed in the car industry for infotainment. That would kick-in in 2014, and will go on for over three years. How long have you been supplying to BMW?
We replaced Continental at BMW in 2007. We started shipping that system in 2009. All the models from 2009 at BMW are Harman. In 2012 comes the Next Big Thing (NBT). That is all Harman. That is going to be the best system when they launch in July. When that order comes to an end in 2014, we have been given the order for NBT-Evo (Evolution). That is $2.2 billion. So that works out to three generations of systems from BMW. How will you tap a volume market like India without diluting the premium-ness of your brands?
I would rather come from that position than come from the perception of poor, cheap, low technology brand. Over the last five years, we have become a more innovative company than before because we have invested in R&D. About 8-10 percent of our sales revenue goes into R&D. Look around at our competitors, they spend 2-3 percent. Our aim is to build a robust pipeline of patents.
Our next challenge is how to become relevant in India. Which is why during the last five years I have announced to take $400 million permanent cost out on an annual basis. We streamlined operations, shut down inefficient ones in the UK, Germany and the United States.
We have opened seven factories in Hungary, China, Brazil and Ukraine, and opened R&D centres — two each in China and Bangalore. About 250 engineers work in Bangalore on BMW and Daimler projects. Over the last four to five years, we have undertaken reverse engineering, streamlined R&D processes, created scale, reduced SKUs and centralised purchasing. This has enabled us to lower costs by 10-15 percent from what we inherited four to five years ago. So, that allowed us to be successful at Tata Motors. Tata would not pay more than 10-15-20 percent premium. Are you looking at further localisation?
We are cost-conscious all the time. But what drives me and what drives our labs is price performance. If I can continue to delight you with features which you haven’t thought of earlier, that’s the driving force. Cost is a given. Is there a target you have set for the team to drive costs down further?
I did. $400 million was a permanent cost reduction target and we exceeded that. For last 10 quarters, our EBITDA has grown 220 percent CAGR, and our topline has grown 20 percent over these 10 quarters. That tells you about our cost culture.
We are leveraging countries like China, India, Brazil, Ukraine and Hungary which we didn’t earlier. Any plans for a new brand?
We will compete in three stages in automotive — premium – high, mid and entry — where we can differentiate our brand proposition. We are not looking for another brand. We acquired a brand but didn’t keep the name. With that acquisition came two factories, a customer base, distribution channel. Assets are becoming cheaper in US and Europe. We will look for assets to acquire for technology, talent distribution and customers that it offers. How many Indian OEMs do you supply to?
At present, Tata Motors. We hope to get more. Our global customers like Hyundai and Toyota are growing faster in some segments than pure Indian OEMs. Do you expect the business mix between Europe and other markets to change?
Our own forecast is that by 2015, at least 25 percent of $ 6 billion in 2015 (projected) will come from BRIC nations. The Russian and Brazil markets are not very big. We have the largest patent portfolio in digital signal processing. Are celebrities just brand ambassadors for Harman?
We have roped in A R Rahman as our brand ambassador for the next three years not only to endorse our products but optimise them for Indian customers. Incidentally, Sir Paul McCartney, who has never signed up with any company in his life, has signed up with Harman.
Source: Autocar Professional