Should a branded manufacturer turn into an anonymous contract one? Rama Iyer of Kvaerner Powergas, Alok Gupta of Cabot India, and Nishith Mathur of Accenture discuss.

By R. Chandrasekhar

Dhruv kohli, Managing Director, Umang Ltd., knew he was holding on to a lifeline. But he was aware that some of his direct reports thought otherwise. Vinay Paliwal, Vice-President (HRD), was particularly forthright. ''A death trap,'' he said. The issue in question was the tentative offer made by Fredrick plc of the UK, after months of mutual talks, for using Umang's facilities for captive manufacture of air-conditioners.

Umang had two business divisions: air-conditioners and refrigerators. Over 80 per cent of the turnover in both divisions came from projects and the rest from trading through the dealer network. By successfully bidding for and executing large projects-both at home and abroad-Umang had acquired, over the years, a fine grip over costs, time frames, and pricing that gave it a formidable edge over competitors. The company led the central air-conditioning segment (45 per cent) and the room air-conditioners segment (33 per cent) and had the second-largest market share of 21 per cent in refrigerators.

''The deal with Fredrick envisages the transfer of one of the three existing AC manufacturing facilities of Umang to a new 50:50 joint venture,'' said Kohli. ''Fredrick perceives the JV as a platform with which to get a foothold in India and the neighbouring markets. For Umang, it would mean a new growth ambition: focusing on the higher end of the value chain. Servicing AC equipment-which not only offers higher margins, but also fits in well with our project orientation-will be the driver for us. That is where the future lies.''

''In fact, I feel that, over time, we should look for similar arrangements not only for our two other AC manufacturing facilities but also for the refrigeration business,'' said Rajiv Desai, Vice-President (Corporate Planning).

''If we pursue that logic, where would Umang be five years from now?'' asked Arun Singh, VP (Special Projects). ''It will move out of manufacturing for itself. We will become a satellite firm, orbiting around global majors. Umang will lose its historical identity. Is that what we want? Several skills would become redundant. Several people would become redundant. It will be gut wrenching for those who have built it all up.''

''The business drivers of yore, like capacity utilisation and cost reduction, are no longer valid at Umang,'' said Vikas Sarang, COO (Refrigerators). ''We should now look for value. Is each of our activities, processes, businesses, delivering value? Is it contributing to enhancing shareholder return? That is the question. Value addition over-rides cost reduction as a business objective. That is why we need to reposition ourselves on the value chain.''

''We have to safeguard the future of Umang,'' added Kohli. ''The white goods sector is facing a churn. The volumes we sought when we set up two new AC facilities in India in 1992 and 1995 are simply not there. The market is facing a glut. We need to look for alternatives in order to survive. And, satellite manufacture is a worthwhile option.''

''My main apprehension is whether we are forfeiting all that we have built over the years,'' said Vinay Agarwal, COO (Air-conditioners),'' and, in doing so, compromising the future of the company.''

''You have a point there,'' said Kohli. ''Let us list our competencies.''

''Our project engineering skills,'' said Agarwal. ''Our competitors simply do not have the range of capability that we have in terms of EPC (engineering, procurement and construction management) skills, product technology, it infrastructure and after-sales-service. We ensure the best deliverables in terms of service quality and timeliness. This has been repeatedly acknowledged by our customers whose referrals have consistently generated over 50 per cent of new business every year. Our ability to offer customised services to clients, in terms of managing airflows and temperatures, is among the finest in the world. It has taken years to build this.''

''The fact that we operate on a low working capital is a major competency in the industry,'' said Arun Vinayak, VP (Finance). ''We conduct our business with client funds rather than with bank finance. In fact, our reliance on bank finance is less than 5 per cent of our working capital requirements. We have ensured maximum liquidity in operations by fixing milestones for each project, executing each phase of the rolling project as per a time schedule, and securing prompt payments at the end of each milestone. That is what sets us apart from domestic competition whose relatively stronger focus on unitary products and ducted systems forces them to borrow funds to finance their manufacturing and marketing operations.''

''How about the fact that we have a disproportionate share of outstanding technical talent in the Indian air-conditioning and refrigeration industry?'' asked Paliwal. ''With 650 qualified engineers and 1,200 trained technical staff, we have the single-largest concentration of industry specialists in the country. The competence of our people is what has contributed to our monopoly position in central air-conditioning. Incidentally, that, in turn, is what enables us to attract good quality people whenever the need arises. Our competitors will take long to come anywhere close.''

''Or the long-term relationships we have built up with architects, interior designers, contractors, vendors, and installers all over the country. It is unmatched by any of our competitors,'' he continued. ''Or the finest logistics support system with over 2,000 dealers today nationwide. It is an effective entry barrier to any MNC trying to set up shop in India.''

''A satellite status only ensures that we fritter away all these advantages,'' said Paliwal.

''Umang is primarily a project engineering company,'' said Kohli. ''That is where we should refocus our energies. Our main thrust should be on bagging contract jobs worldwide for large engineering projects. I don't think a satellite status marginalises our skills,'' he continues.

"I see this as an excellent opportunity for Umang to re-invent itself as a value-driven company. By focusing on the service end of the value chain, we will stay on top of market circumstances instead of being overwhelmed by them.''

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