Daikin, which was once looked upon as a premium air conditioner brand in India has managed to reach the masses by producing locally. The Japanese giant now plans to use India as a base to foray into emerging markets such as Africa. Yoshihiro Mineno, senior executive officer & general manager, global operations division, Daikin Industries, talks to TOI about the company’s plans. Excerpts:
Can you share the Daikin’s business outcome across the ASEAN regions? The south East Asian air conditioner market experienced a number of challenges in 2018 including erratic weather . Under these conditions, how did Daikin manage to grow?
The Southeast Asian air conditioner market saw brisk activity in 2016 with hot summer weather, but did not post growth in the following two years because of the cooler temperatures. During this time, we focused on expanding our dealer network in Asean/Oceania and in India. We now have approximately 7,500 dealers in Asean/Oceania as well as approximately 7,500 dealers in India, and we’re aiming to increase these to 10,000 each. At the same time, we’re
also focusing on after-sales service and training. We’ve set up regional training centers, where we are working to expand our training programs not only for room air conditioners (RACs) but also for SkyAir series packaged air conditioners (PACs) and variable refrigerant volume (VRV) systems. We’re investing funds and manpower based on a policy of offering this kind of full range of after-sales service and training support so that dealers can grow their sales.
The price competition is fierce in Southeast Asia? Your thoughts?
We sell around 70% of our products through dealers. We’ve strengthened our efforts to maintain prices in order to preserve profits at our sales outlets and are absorbing the impacts of currency devaluations in various countries. The RAC market is prone to price wars, however, so we’re focusing our strategy to focus on SkyAir and VRV where profit is easier to secure. At the risk of repeating myself, enhancing our training and after-sales service is also important
for this reason. We are increasing our workforce by 1,000 people each year to find promising dealers. We currently have a combined workforce in Asean and India of around 20,000 people, and plan to increase this by 5,000 in the next five years. Of these people, about 70% work in our factories, and the rest work in sales. We now have a sales staff of approximately 700 in Thailand, approximately 1,000 in Vietnam, and close to 1,000 in India.
We’re focusing on sales as well as product development with the aim of implementing a ‘different model, different channel (DMDC)’ strategy. We have research and development (R&D) centers next to our factories in India, Malaysia, and Thailand. Using these centers, we want to further strengthen our ability to develop products locally as much as possible.
How many manufacturing facilities do you have in Asean/Oceania and India?
We currently have air conditioner factories in Thailand, Malaysia, Vietnam, Indonesia, Australia, and India. Daikin Compressor Industries (DCI) also produces compressors in Thailand. And we have produced residential ducted indoor units in Australia for many years.
What products are posting higher sales in India?
Our RAC sales are growing but we are seeing stronger growth momentum in SkyAir and VRV now. Wall-mounted split units are still the mainstream in Asia, but if you can create a culture of light-commercial cassette-type indoor units in this, there is still a lot of room for growth. We’re targeting annual sales of ¥100 billion in India over the next two years. To achieve this target, we will create and build up our sales, engineering, manufacturing, exports and
training departments to support this growth & expansion.
Could you talk about your sales and production strategy across Asean countries?
Daikin enjoys high market share across South East Asia and will focus on other smaller markets going forward. Air conditioners have not yet achieved much penetration in many SE markets, but these markets are expected to grow in the future. The use of inverters is growing in the Asean region, and inverters are expected to penetrate the light commercial market next, so we’re planning to capture this market early with inverter SkyAir and VRV models.
Even though we are shifting to inverter products, this doesn’t mean that we will discontinue our non-inverter sales. Our dealers must be able to offer both types of products. We are also entering into the inverter market in many countries aggressively.
What has been your success strategy for India, so far?
Daikin is targeting market share in the volume zone in India, so first we’re looking to increase our sales on a unit basis. To do this, we’re producing costcompetitive differentiated products locally. In India, Chinese goods no longer receive preferential treatment in terms of the Good and Service Tax (GST), so local production has become much more advantageous. Our factory in India produces products sold in the domestic market, and we’re also thinking of using it as an export base for Africa and Latin America due to the currency exchange benefits. We aim to build another factory in India for this purpose.
India is a large & complex country. What areas of India are you focusing on for sales?
We’re focusing on large cities first and then moving into successively smaller markets. We started in tier-one cities such as Delhi, Mumbai, Chennai and Kolkata, and now cover tier-two cities of two million residents, tier-three cities of one million residents, and tier-four cities of 500,000 residents. We will continue to ramp up this market development and spread ourselves horizontally.
In some regions we’re also using mass retailers and have increased our nationwide dealer network to 7,500 stores. In addition, we have opened 600 Daikin Solution Plazas across India in cooperation with regional influencers and entrepreneurs. They invest capital in the Daikin Solution Plazas and we provide financial support for the showroom. Daikin Solution Plazas sell products and provide after-sales service like Dai- kin branches and sales offices. We’re
aiming to set up a total of 10,000 stores, combining the Daikin Solution Plazas and dealers.
We’ve also built a training centre next to our factory in India to educate dealers and train around 30,000 people a year there. This still does not allow us to cover all of India, however, so we are partnering with universities to have them establish Centers of Excellence (CoEs) on their campuses. We make the CoEs like showrooms with displays of Daikin products and educate both instructors and students. We have set up 20 of these CoEs and use them to educate dealers. In addition to our training centres, we have also built a R&D center to develop products meeting local needs next to our factory at Neemrana, Rajasthan. We have a development team of about 120 Indians there contributing to profit by updating models to local needs.
The African market is starting to emerge and many Indian companies have started operations there succesfully. How do you plan to take them on?
The African market is starting to emerge and many Indian companies have started operations there succesfully. How do you plan to take them on? We’re thinking of using our factory in India to enter the African market. We’ve set up a development team in India and produce and export products from there. We have an office in Nairobi, Kenya, which opened in March staffed with people from India. We believe we can expand our market in Africa if we train dealers and build up a sales network like we did in India.―Times of India