'We've just won the Volkswagen order'

It controls a little under a fourth of the domestic market in terms of value, and is now making aggressive forays into the global one -- it bought over Dunlop's facilities in South Africa last year and is working on a greenfield project in Hungary to supply the European market.

A start has already been made by winning a prestigious contract with Volkswagen for its Polo models in India next year. Business Standard's Surajeet Das Gupta and Danny Goodman spoke to Apollo Tyre's vice-chairman and joint managing director Neeraj R S Kanwar on the company's global foray and its plans to compete with global majors who're slowly increasing their share of the local market as well. Excerpts:

How do you see yourself carving out a place in the global market that is dominated by the big boys like Michelin and Pirelli?

The top players operate in the euro18–20-billion (Rs 124,200-138,000 crore) market (Michelin and Pirelli), the middle-tier is the euro4-7-billion level (Continental, Sumitomo, Yokohoma) and then there's the euro1-4-billion level which is where players like us are positioning ourselves. The top players corner about 75 per cent of the market, they are much more efficient, have deep pockets and huge R&D spends -- Michelin, for instance, spends around ¤800 million on R&D.

But we're making inroads. We were the only Indian company to be invited to the Volkswagen vendor-meet at their Wolfsburg HQ.

We have an order to supply tyres for Polo in India in 2010. Negotiations are on to see if we can supply to other markets as well. Four years ago, they were closed to the idea of buying from us, today they're open to partnering with us. We've also moved up the technology ladder -- we can also supply to VW from our South African plants.

We've tied up with universities in Germany for R&D and are getting experienced hands from overseas. The German technology centre will help us. We have hired research talent from Dunlop Europe who bring tremendous expertise on tyres.

In South Africa, we are already competing with MNCs like Continental, Bridgestone, Dunlop and Yokohoma. In Europe, we will be competing with them. International competition is not new to us. Today, we are the top exporter of passenger radials from India.

And the greenfield project in Hungary. . .

We've had to put the manufacturing facility on hold due to political and other reasons but our marketing initiatives are on track. We've set up a R&D facility in Russelsheim, Frankfurt which is Opel's village. This is the European tyre technology centre for Apollo, from where we will service Europe.

In Germany and across Europe, we'll be using the Apollo brandname -- in South Africa, we use the Regal brandname.

We are currently present in Europe as a niche player. Once the economy picks up, we'll consider commissioning the manufacturing facility in Hungary and serve Europe. The strategy is to get Europe right. Given the current problems in the US, I think it's good to stay out of that market which is also very price-sensitive.

We've set aside Rs 3,000 crore (Rs 30 billion) for Hungary and a new Chennai manufacturing plant. Once the economy picks up, we'll begin building these plants.

For me, it's important to keep domestic markets healthy and then explore the overseas markets. Also it's good to maintain our leadership position in India.

Any plans to enter China?

For that, I have to produce there and it's not easy. But China can't be ignored.

Don't global auto majors prefer to deal with their global tyre vendors?

Global players who have a relationship with OEMs surely have an advantage. But at the end of the day, if you can give the right quality at the right price, you win. Since labour and manufacturing costs in India are lower than those in Europe, we give a good price.

Also, we have an established distribution and servicing network in India. Look at the automotive component manufacturers. All of them are setting up bases in India so that they can service their clients better.

So you're re-orienting the way tyres are sold domestically?

At the end of the day, it's the same whether you buy a fridge or a car. I tell my employees that they're no longer making tyres, they're servicing a customer who needs a tyre to reduce noise in his/her vehicle, or to improve fuel efficiency. You must understand what s/he wants and the service s/he requires -- the pricing strategy is so volatile that there is very little differentiation here.

We attend to customer complaints within a day while the competition takes 5 to 8 days -- earlier, it was 4-5 days for us. Even in South Africa, we respond in two and a half days.

We have opened a chain of retail stores. These will give a totally new experience when you buy tyres. Yesterday, it was the unorganised dealer who helped you. Today, a lady can walk into a retail store of Apollo and get the tyres changed over a cup of coffee. At the retail shop, you may be interested in buying our alloy wheels which were launched recently. So it is the retail experience that matters.

To sell truck radials, I do concept-selling to customers. After all you are paying 30 per cent more, so we have set up a dedicated team which trains truckers on how to fit the tyre and get the best out of it. They sit with truck drivers, ride on trips and educate them. It's all about concept-selling.

How do global majors being here with their own manufacturing strategies affect you?

We're cheaper by 5-6 per cent while they score on manufacturing efficiency. Once they start manufacturing, we have no choice but to get as efficient. I see it as an opportunity.

In the 1990s, we were totally an after-market player. Today, we are 80 per cent after-market and 20 per cent OEMs in the truck industry. In the car segment it's 50: 50. In the niche off-the-road segment, there are only three top players internationally -- Goodyear, Bridgestone and Michelin.

We've set up a facility for this in Baroda in partnership with BEML and Coal India to manufacture these huge 35/57/61-inch tyres which could cost anywhere between Rs 800,000-15 lakhs (Rs 1.5 million).

Did producing for the Nano pose a challenge since costs were a big consideration here?

Our goal was to make a tyre that was 25 per cent cheaper. We put together a team in Chennai. They looked at various ways of reducing costs like using minimal manpower, usage of various substitute materials, and so on. Eventually we met the target.