2001 was probably the worst year for the steel business in India. Prices were at an historic low, in fact the lowest in 30 years. It was also the time when B Muthuraman took over as managing director of Tata Steel.
But it was a tough task for Muthuraman in more than one way. He was also filling the shoes of J J Irani, who had helped Tata Steel overcome its worst slump and turn into one of the world's best steel enterprises.
Muthuraman joined Tata Steel in 1966.
Despite the trying times, he has piloted Tata Steel toward greater growth. He has managed to reduce costs without cutting down on production.
These days, Muthuraman is trying to bring the concept of branding to steel, which has long been a commodity business.
Recently, Tata Steel got down branding gurus, Al and Laura Ries to talk about the concept of branding and how it should be done.
So, if Muthuraman has his way, consumers will ask not just for steel, but for Tata Steel.
Excerpts from an interview with Special Correspondent Priya Ganapati.
Steel has always been a commodity business. People don't ask for a particular brand of steel. But now you want to bring the concept of branding to your steel products. Why? What kind of advantages will branding bring?
I don't see any reason why steel should not be branded. For a very long time, steel has been assumed to be a commodity, but it is not so. It is a highly technologically complex product to make.
There are different grades of steel for different applications, different types of steel. There are far more different types and shapes of steel than there are of many consumer products.
And you can make a distinction between one type of steel and another, one producer's steel and another. So steel has all the characteristics that are needed for it to be positioned as a brand in the marketplace.
We realised it two to three years ago that for a long time the steel industry has not made the effort to differentiate its products.
At Tata Steel, we have a good process; we have good technology, people, management, marketing practices and a wonderful product mix. So why not position that in the marketplace and create the correct perception in the mind of the customer?
How are you going about this branding exercise?
First of all, for a brand to succeed the product should be good. That means the process should be reliable, the equipment should be reliable, the technology should be reliable. We have corrected many of those.
We have embossed the Tata Tiscon brand on the steel itself. So the steel is intrinsically a more reliable and consistent product and gives greater value to the user than anything else.
Then we go to the marketplace and communicate this. Tiscon, for example, like any other rebar (reinforcing bar), is bought in retail in small tonnages like 3 tonnes or 5 tonnes per family.
So we have chosen a set of distributors and trained them. They in turn have trained retailers, just like a fast moving consumer goods company or a pharmaceutical firm trains its distributors and retailers.
We have taught them the art of channel management in terms of how to maintain discipline of the channel geographically, territorially and price-wise and how to ensure transparency of transactions. That is one of the ways of managing a brand.
You have said that production cost, volume, price mix and price are the four levers available to a company to augment its bottom line. For Tata Steel what do you think is the most important of the four?
The most important lever for Tata Steel in the current times is product mix, for two reasons.
Take a cold-rolled coil. A coil that you will supply for a garage shutter is cold-rolled, while the one you supply for the outside body of a refrigerator or an automobile like Ford, Maruti or Indica is also cold-rolled.
But there is a huge difference between these two. One is an ordinary product priced between Rs 17,000 and Rs 18,000 and the other is a highly technologically oriented product where you have to work closely with the customer and that will be priced around Rs 30,000, which is nearly 70 per cent more and you get better margins for it.
That product you can make simply because you have the equipment and technology, but you need knowledge, by the people who manufacture it, knowledge of applications and so on to market it to customers.
And not all steel companies in the world have that. That is why product mix is so important to us and it is something that other companies can easily copy.
The second most important lever is cost. We are very good at cost reduction and have been consistently doing it over time.
We have some new re-engineering processes on to reduce our costs on our non-core areas like our schools, towns, water management, et cetera. We plan to outsource running of our schools to reduce running costs. The third is volume. So it is not necessary for us to depend only on price as a tool.
Talking about volumes, how do you assess current domestic demand and where do you see it heading?
In India, infrastructure creation is just round the corner from taking off. The first four months of this year have seen an increase in structural materials growth by almost 30-40 per cent, which is the highest I have seen in the last 30 to 35 years.
I see a great demand pull from the construction industry. The auto industry and other flat product consuming industries have also grown, but that is by 8 per cent or so.
What I see happening in India over the next 5 to 10 years is a demand growth of about 8-10 per cent per annum overall.
Last two years have been among the toughest for the steel industry in over three decades with prices reaching historic lows in 2001-02. How was it like pulling Tata Steel through these times?
Tata Steel is a very, very special company and we have a very special culture. The people of Tata Steel can get through anything. When steel prices were at their lowest, our people put their heads together and said that we will make sure that we don't end up in a loss.
We cut costs and increased production. We increased our market share in a year when the market actually shrank. In niche segments like the automobile, appliances, high carbon wire, rods, high quality construction segment. . . we increased our market share significantly. We increased out overall market share by 2 per cent or so.
It is the people and systems of Tata Steel who are responsible (for this growth). We have a culture of continuously improving. Whatever happens we will improve year on year.
One of the problems that you and your predecessor have talked about is the large workforce that you have. Is that still an issue, and, if yes, how are you resolving it?
It is an issue. But one that is well understood and well tackled. In 1992, we were 78,000 people. Last year we ended up at 43,000 people. So we reduced 35,000 people in ten years. This year we will reduce 3,000 people and will continue to the same next year.
We are doing this because we have a very enlightened union. They understand business compulsions. Our own early separation package is a very healthy and rewarding package. We are giving an employee a salary for the rest of his life at a little higher than the current rate and all other facilities. So they are free to go and do some other job. Yet, I think it's a worthwhile thing to do because we need to reduce manpower and become more labour cost effective.
But it a challenge that everybody understands, including our Tata workers' unions. So they have been extremely co-operative and very business-like about it.
Automotives is becoming an interesting segment for you. What kind of initiatives do you have ongoing in that segment?
If you want to become a good supplier to the automobile industry, you must become a solution provider. It is not sufficient to just make steel and supply. Even to do that you need a very good understanding of the carmaker's processes and future requirement.
You have to take part in the design of future vehicles. You have to take part in the early vendor involvement programme of the company. We are working with Telco in that.
For some car that is coming out three years hence you have to be a part of the process. You have to design steel that will be used in the future.
We have also started the EVI (early vendor initiative) programme with Ford also. This is the only way to go about supplying steel for automotives. We are the only Indian company working with Ford on an EVI programme.
What is on your agenda for the next two years?
One is our product mix will improve continuously. Our volumes will be incrementally better.
Two years hence we will have a million tonnes more than today because we are finishing a million tonne plant in Jamshedpur. By then we would have also acquired a steel plant that we want to acquire. We would have built our ferro-chrome plant in South Africa.
Two years down the line we would have also taken a position on our titanium project. We would also be looking at further expansion and modernisation of our plants.
So what worries you?
The only thing that worries me sometimes is government regulations and rules. Hopefully they will be rationalised and won't be restrictive. And this is not just for India. I am talking for the steel industry worldwide.
In India, I think we need to have good mining policies. We are a mineral rich company, yet I don't see good mining policies being followed in many places of the country. We need good infrastructure in this country. The infrastructure development in this country worries me. It is not as fast as it should be. There are more cars than roads.
Hopefully the government will enact good mining laws and spend more money on infrastructure creation.
As for the company, I have no worries.
The Indian steel industry will do well. It will grow at about 10 per cent per annum at least, and Tata Steel should be outgrowing that.
