As the government emphasises on boosting local manufacturing in the backdrop of mounting troubles with China, the domestic and non-Chinese companies want the government to announce an incentive-based phased manufacturing program (PMP) for categories such as refrigerators and washing machines, saying that localisation here is really low.
“Within the industry, we are discussing refrigerators and washing machines. We have disabilities in these two categories … the percentage of localization of components and penetration of these categories in the country is still very low. So, the potential is really large,” Manish Sharma, president and CEO of Panasonic India and South Asia who is also a co-chair of FICCI Electronics & White Goods Manufacturing Committee, said in the TOI Dialogues session on consumer goods.
Sharma said that the consumer durables companies will petition the government for such a road-map. “Therefore, while the official request to the government has not happened, but within the industry, we are creating consensus for two more categories — refrigerators and washing machines.”
The government already has a robust PMP programme for smartphone makers, and a similar plan is understood to be in the pipeline for the AC makers, a mention of which was even made by Prime Minister Modi when he spoke about the need to cut down on costly non-essential imports.
Now the industry wants a roadmap for other categories to give a boost to local sourcing.
Asked whether the non-Chinese brands will gain market share following anti-Chinese sentiments amongst buyers, Sharma said that only those brands would benefit that offer value to the customers.
“… factors like these may create some momentary shifts… But I think eventually what is going to be decisive is whether are we able to provide value to the consumers?… that is going to remain relevant in the times to come.”
He said that the government’s Rs 50,000 crore production-linked incentive (PLI) scheme – more focussed currently on the smartphone category — is a step in the right direction, and there is encouragement for the formation of a robust component/supplier base.
Asked whether the Covid19 slowdown would impact the top-line and bottom-line of companies, he said that the industry has already lost a significant part of the business in the crucial months of April and May.
“For most of the companies, especially dealing into white goods, and people like us who deal with cooling products such as air conditioners and refrigerators, April itself is roughly about 12% of the annual demand. If I couple this with the loss which has happened in May, we are already looking at an opportunity loss of about 21-22% on the top line. And headwinds still continue to be very strong, because you look at the rupee continuing to stay in a depreciated state.”
Also, for categories like TVs, there is a large amount of volatility when it comes to open cell pricing and the prices of the full panel. “I think the bigger priority for manufacturers is to ensure that supply chains still continue to remain consistent and intact. We are dealing with that situation currently… I think if we are able to manage this aspect, we will definitely minimize the potential loss which may happen on account of the gap between supply and demand. So, I think that is the big challenge, which we will have to really deal over the next few months. If we are able to do that, I think it's a great job done.”
Q&A: Manish Sharma’s insights on various business aspects
The mood in the retail market and what are dealers telling you? What are the customers saying?
I think reasonable optimism is cutting across the country. It depends on geographies where potentially the impact of infections and the way they are increasing on contractions is creating a sentiment which is negative. So, therefore, the uncertainty or the unpredictability is also playing a major role. In that sense, the business partners into urban markets are facing a higher difficulty as compared to the ones who are present in semi-urban or Tier 2 or Tier 3. So, that is about the distribution and the geographical sentiment.
I believe that cash is becoming central to the majority of considerations for businesses, whether large businesses or small and medium enterprises. So the thought of conserving cash is the top priority of businesses.
Some of the consumer categories such as dish-washers have been growing very, very fast. Are you looking at entering new categories? When would Panasonic introduce its global dishwashers in India? Will you expand your product category?
The first insight that we have got is that people are now really understanding the necessity of their products, and their ability to help them multitask. So, people like us have to really get into product planning for working out products that help in multi-task. This eventually converts into a situation which will see IoTization (IoT=Internet of Things) is going to happen in the near future. So more number of sensors are going to get incorporated into appliances … So, I think one criterion which will cut across is how appliances can let people multi-task.
The second sort of insight which has started to come over the last few years, and I feel that this has really accelerated during these times, is the concept of the total cost of ownership. People have really started to be more aware of the concept of the total cost of ownership, which essentially means that the initial buying cost and the cost of operation throughout the lifecycle of a product when it is owned by the consumer. So, for instance, if one buys an air conditioner, now post-warranty, what are my expenses and how the deterioration of performance of the product would lead to higher operating expenses during the lifecycle. So, people are becoming more aware of those kinds of concepts also.
Two things are going to determine the future product planning of a lot of organizations like us. The first one is that how we can create a digital ecosystem of products.
When your Japanese HQ looks at India, how does it view the market? We are a large market and we are supposed to consume strongly at some point in time. Do they feel confident looking at India?
I think for every multinational company, this is a huge opportunity without any doubt. But Panasonic operations headquarters considers India both as an opportunity and also as a capability. This is line with the recent mission which the country has set for itself — becoming self-reliant. So, the idea is that how we can create services out of India essentially into manufacturing. This means how can we look at India becoming the manufacturing hub, especially to export towards the West which is the Middle-East and Africa. And second is how can we look at exporting services both human resources and some of the IT-enabled services from the country. In line with this, we've been investing consistently in the country, and we have in excess of 15 manufacturing companies in the country.
There is this recent investment which has happened in three cities to set up a new factory for Anchor Electricals, which happens to be our sister company. And if you look at last four to five years, we had set up our refrigerator factory last year in Jhajjar. In 2012 December, we set up our air conditioner, washing machine and a welding machine factory in Jhajjar. So, if you look at investments in terms of manufacturing, they've been happening reasonably consistently.
On the other hand, we also invested in creating an India Innovation Center based out of Bangalore. And the fundamental purpose of setting up this innovation centre is to drive innovation from India for the world. And today, I'm extremely delighted to share that in a short duration of three years, we have come out with reasonably innovative solutions. And the latest one is MirAIe, which is a software platform that lets one connected ecosystem get created within the living spaces where all the appliances — air conditioners, washing machines, switches, wires, wiring devices, LED lamps, everything and your video door phones, are connected. Also, we are working on bringing in the security feed on this platform for the home. So, this becomes a one-stop solution.
Are we actually now living the digital age? And are we in the contactless era?
So, retail is potentially going to dramatically change in terms of adopting more technology interventions. So, possibly across retail stores, you may see contactless demonstrations happening, which essentially may get fuelled in the time to come by some augmented reality solutions, which might be in stores. And those technologies are now starting to get available at a cheaper cost.
Will non-Chinese brands benefit in case the curbs on Chinese continue on border tensions?
Eventually what matters is whether you are creating value for the consumers. The consumers are going to decide based on our products, our services, our attitude, and the way in which we reach out to them. Factors like these (Chinese tensions) may create some momentary shifts… Eventually, what is going to be decisive is whether we are able to provide value to the consumers?
Like it is thought about for ACs, would you want phased-manufacturing programme (PMP) for other categories as well. We already have a PMP and production-linked incentive (PLI) scheme for phones?
We have not made a formal request to the government yet, however, we’ve had an elaborate conversation in CEAMA. So, air conditioners are already happening with the government. Parallelly, we are also within the industry discussing refrigerators and washing machines also, simply for two reasons -One is the disabilities in these two categories is almost equal to air conditioners. And the other aspect is that the percentage of localization of components and penetration of these categories in the country is still very low. So, the potential is really large. Therefore, while the official request to the government has not yet happened, but within the industry, we are creating consensus for two more categories — refrigerators and washing machines
What about fresh investments from Panasonic? Panasonic is a big partner for Tesla in the US for electric batteries. And we've been waiting to hear from Panasonic whether it actually wants to have something related to batteries in India, because while we may have a temporary kind of a setback right now, the movement towards sustainably seems to be growing. When can we expect Panasonic India to announce investments on battery cells and such areas?
Currently, we are looking at bringing in cells in the country and ensuring that module manufacturing, and the assembly of modules starts to happen. The first phase in the last five years was bringing in modules from Japan or elsewhere for a telecom requirement… the logical next step is to bring the cells in the country and build upscale. And while we look at a very clear demand situation to happen, because this happens to be a very large ticket investment, so as soon as the demand is extremely clear, we may be really looking at a serious consideration.-The Times Of India