Two years ago around this time, ABB seemed on the verge of collapse. Asbestos claims relating to its us subsidiary, Combustion Engineering, were soaring (to a then projected $3 billion or Rs 14,400 crore at the 2002 exchange rate); Percy Barnevik, its legendary CEO and Chairman, long hailed as Europe's Jack Welch, had stepped down just a year ago accepting blame for the company's poor performance (subsequently ABB would move to recover part of the Swiss franc 148 million, or Rs 429.2 crore at the then exchange rate, paid to Barnevik as his retirement package), and a spate of poor acquisitions had left the engineering giant groaning under a mountain-load of debt. But since the middle of last year, things have been looking up for abb. First, it won court approval in the us for a pre-packaged bankruptcy proposal that restricts its asbestos liabilities to a little over a billion dollars; then it managed to find buyers for its oil, gas and petrochem business; and late last year also cleaned up its balance sheet. Now focussed on just power and automation technologies, ABB seems well into a turnaround. Its income from continuing operations almost trebled to $142 million (Rs 639 crore) in the third quarter of 2004 compared to the same period the previous year, and revenues also grew 13 per cent to $4.83 billion (Rs 21,735 crore). Will ABB's turnaround hold? With Chairman and CEO Jurgen Dormann set to hand over the CEO's job to Fred Kindle starting January 1, the world is looking to the former Sulzer CEO for answers. Recently in India, Kindle, 45, spoke to BT's R. Sridharan on ABB's past and future. Excerpts:

The last three years have been pretty tough for ABB. But things seem to be looking up this year. What would you attribute the upturn to and do you think ABB can sustain it?

Well, if you talk about an upturn, one has to first analyse the reasons for the difficult moments or crisis in the past. The root cause for the crisis was governance as opposed to the regular operating business of power and automation technology, which has always been sound. But we did have severe problems with corporate governance; we had some strategic issues, we had some wrong decisions taken with regard to the balance sheet, and in addition to all that we had the asbestos issue. Those special effects combined with the perfect storm of 2002 in the world economy. That's how the crisis really erupted. If you look at what has happened in the meantime, the top management under the leadership of Jurgen Dormann has done really very well. The balance sheet has been cleaned up, corporate governance has been brought up to par... actually, exemplary board practices. The asbestos crisis has been more or less dealt with (with the bankruptcy and district courts approving the plans), and the performance of the two divisions has improved significantly.

In the past, ABB was often described as a European company, but with an American style of management. What kind of a management culture would you like ABB to have now?

The challenge is to organise your business in such a way that it is flexible and can absorb future risks

I wouldn't categorise it in terms of European or American because different people understand the terms differently. If you look at the 90s, ABB was a growth machine, but our operating performance (in terms of profits) never excelled to the same extent. At the end of the day, our aspiration, my aspiration, must be to generate profitable growth, and not growth for growth's sake. If I had to prioritise, choose between growing, say, by another 10 per cent and having one-and-a-half (percentage) operating margin more, I would choose the latter. Because higher operating margins will create the profit that will allow me to invest in, say, building up ABB India or R&D.

Over the last two years, ABB has systematically sold a whole lot of businesses. Now that the core focus is on power and automation, what kind of a company would you like ABB to be?

The divestitures that you have mentioned were necessary and well executed. Fact of the matter is that ABB was probably a little too diversified and many things were never really integrated. We have to execute well in order to get the benefits. If you don't, you end up with a business that's too far-flung, and benefits don't accrue to the bottom line. That was the situation at abb. The management and the board, in their moment of crisis, decided to focus it down to the core divisions of power and automation.

Looking into the future, we see a lot of growth potential in those two divisions. Power technology is an obvious example. If you look at India, for example, electricity and power technology are the backbone of infrastructural development. If you have a gap in that area, you won't get anywhere. The same can be said of China. And in Europe and America, the infrastructure is old and needs replacement. In automation, we cover a wide range of products and have a solid growth in double digits. So there's a lot of potential in that division too.

A lot of ABB's growth is coming from markets like China, India and Latin America. But the problem is that their growth tends to be uneven. How does ABB plan to cope with this?

The problem is that the world is increasingly becoming less predictable. In a matter of four years (1998-2002), we saw the world go from the exuberance of the dotcom era to a dismal, desperate situation where there was gloom everywhere. I think the future is much more stable than the past, but it would be naïve to assume that the future is very predictable and you can come up with concrete plans for the next seven to eight years. The challenge is to organise your business in such a way that it is flexible and can absorb some of these risks, some of this volatility. Part of that is by diversifying into different markets, and the other part is by diversifying the product range. So, focussed diversification is what you should be looking at. The third thing is looking at your business system and asking where can I swap fixed costs with variable costs.

You have proved to be more conservative in your market guidance than ABB's previous CEOs. Is that you or is that what ABB needs at this time?

It is partly me and I am also convinced that ABB needs to be a little more conservative at this time. In German we have a saying: Do good and talk about it.

Some of the analyst reports paint you as a ray of hope for ABB. Is that too dramatic a picture? How do you react to it?

The people at the top do serve as catalysts for change, but at the end of the day it's a team that pulls the company forward. And the team includes everybody from the top to the bottom. If I am successful, it will only be partly my own doing. If I fail, I would have to take the majority of the blame because the substance was good to start with.

India has profound engineering talent; it would be a waste if we didn't take advantage of it

You mentioned that you expect the asbestos issue to be resolved favourably. But is ABB prepared to cope with an adverse ruling?

I am confident that the ruling will be positive. Even if it isn't, we will cope with it somehow. Let's face it, we have put together a plan that has been approved by the bankruptcy court and the district court. There were a few claimants, just a few claimants, who wanted to go in for an appeal (at the Third District Court in Philadelphia). That said, ABB today is in a very different position than it was two years ago. Financially, we have a completely different balance sheet, completely different operating performance. That gives us enough breathing room to live with surprises, if there were any.

ABB has this concept of a global factory. What are the products that you think India can manufacture competitively? Would it necessarily be low tech?

Not necessarily. When you speak of low tech, you are actually talking of products that need to be cost competitive. A company roughly has three ways on how it can compete-cost competitiveness, innovation, or differentiation.

This is the Porterian framework (of Harvard professor Michael Porter)...

No, I wouldn't even call it a framework. It is simple logic. A company as big as ABB cannot afford to press just one lever, or leverage point. We have to pull all three levers at the same time. Coming to your question, you know, wherever the cost punch is hitting you the most directly, you look for alternative sources. So that's the first thing you think about when you look at India.

But then again, India has such profound wealth in engineering and technology talent, it would be a waste if we didn't take advantage of that. We are now going to spend some $100 million (Rs 450 crore) over the next three years mainly on additional manufacturing capacity so that we can introduce new products and also expand the range of products that we already offer. That apart, a year-and-a-half ago we set up the first corporate R&D centre in India (in Bangalore). It currently employs about 100 people, but in two years it could go up to 500. Next, there will be a build-up of automation R&D, and an engineering support centre, also in Bangalore. So, it is too narrow if we say that India is a great place for low-cost manufacturing.

Any specific goals for ABB India?

Of course, we have always mid-term plans and long-term plans, but we are following the wise habit of not publicly disclosing them. We have very ambitious goals, and I am sure the local team under Ravi Uppal will deliver them.

You did mention $1 billion in sales at one of your news conferences...

Yes, I did mention it, but I specifically said that don't classify it as a goal with a timeline. It would be great if ABB India reached from $600 million (Rs 2,700 crore) to $1 billion (Rs 4,500 crore)... it's a nice figure; it has a symbolic value.

Finally, earlier you spoke of focussed diversification. I know your balance sheet and stock price don't allow it at the moment, but are any acquisitions planned in India or elsewhere?

Diversification is actually a dangerous term because it means losing focus, and many times it also means losing performance, and that's the last thing we want. But in the next 12 months or so we would definitely work on smaller acquisitions, say less than $100 million (Rs 450 crore). Medium to larger size, we would wait for another 12 months until we have completely taken control of the situation and established good growth. If you look at the core divisions, maybe there are opportunities in India, but it is up to the divisions to come forward with proposals. Personally, I feel very attracted to the opportunity outside of Europe and North America. If I think in the very long term, say 20 to 30 years, I think there's some truth in the statement that if the 19th century was a European one, the 20th an American one, then the 21st could very well be Asian. If I had to make an investment with my own money, I would look very carefully at the opportunities in India or China than somewhere else. So that's something we have to look at from the corporate point.