Schneider's Electric Dreams

Image: Amit Verma

IN POWER Olivier Blum has led his team to acquire six companies in India

When Olivier Blum played rugby at college in France, it was all about fighting hard. That sport is about teamwork with a clear goal—to win. For Blum, who keeps rugby balls of various makes and sizes in his office, the India experience is something similar. When he was called to head the Indian business of Schneider Electric, his brief was simple—capture that market. Blum was heading marketing in China, and India would be a much smaller market.

But Blum wanted just that. His wife was fine—the first time the family moved out of France to China was the main challenge. For Blum, this was the second coming to India. He had been here for a week in October 2002, when Jean-Pascal Tricoire, the company’s then Asia Pacific chief (now worldwide CEO and chairman), wanted him to lead the strategy for the market.

But within one week of his arrival, Tricoire said he wanted him to lead the marketing operations in China, the only other high-growth retail market in Asia.

After his return to India, Blum has taken Schneider right into homes—by entering the retail market. When he took over from Roshanlal Kariholoo, Schneider was all about selling power and energy efficiency solutions, and electrical equipment to large corporations and contractors. To go retail was also about taking Schneider out of its comfort zone.

Worldwide, the company has had sales of 22 billion euros, and in India Blum has led his team to acquire six companies—at a total cost of over Rs 2,000 crore. In the process, revenue grew three times in the last three years to Rs 4,500 crore today.

Schneider had limited presence in selling directly to the end consumer. The retail network it had was of large wholesale dealers who would sell to contractors and builders.

But since last June, it has gone ballistic. The company’s acquisition of Luminous Power Technologies for Rs 1,400 crore last year has given it access to 25,000 retail outlets and for the first time ever, you can buy a ceiling fan made by Schneider. This is a novelty even for Blum, who has been with the company for 20 years.  

The retail foray gives Blum a huge opportunity—to reach homes directly. Blum’s vision is to be present in every sector of electricity—from power generation equipment to distribution to security systems across businesses and residential areas—and finally reach the end user. Now he is working on the last part after building the other segments.

From being about just invertors and batteries, the Luminous brand will cover fans, switches and switchgears. That market is worth Rs 6,000 crore today, and growing 18 percent each year.

In a separate range of stores branded ‘Schneider Electric’, one can see slightly higher end electrical products which would also target small and medium enterprises (SMEs). Both these rollouts are happening in tandem.
Blum is not new to this. In China, which is four times the Indian market, he went after existing players in the retail segment after acquiring Delixi, a player in the mid-level market.

 But there, the distribution was a little easier because modern retail has a big presence and he could tie up with big chains to send Schneider products across the country.

In India, this market is more about independent dealers and retailers. Blum’s major challenge was to convince them that the company was here for the long run, and to make them believe that he cares about them.

“Having a good distribution network is the biggest challenge in this industry, but that said, Schneider seems to understand how to go about it here,” says Anil Gupta, Joint MD, Havells India.

He should know. Havells is a formidable competitor in the home electrical market. It has the highest market share in the switchgear and medium circuit breaker (MCB) markets. Anchor is the leader in the modular switches market. Schneider was a peripheral player four years ago.

But now, it is at Number 2 in the switchgear market and is Havells’ strongest competitor, along with Legrand. In the ceiling fans market, Schneider is just starting off and this is where Luminous’ distribution strength will help.
 
Getting Revved Up
Blum’s idea to achieve success was to have two separate channels of retail to take on existing players in the mass market and yet have a slightly premium pricing for Schneider-brand products.

So, Luminous stores would have fans, switches and MCBs along with invertors and batteries. ‘Schneider Electric’ branded products would be higher end modular switches, sockets and distribution systems for home and SMEs. Some of them will be made in the same factories and be shipped together to save costs. In revenue terms, the retail business should contribute around 18-20 percent in the next three years.

Blum then wanted someone experienced to run Luminous. So, he called up Manish Pant who was heading the Thailand market. Blum’s choice was in line with his vision—Pant saw the acquisition of Luminous as a quick path to becoming the leader in that space.

For driving the Schneider brand, Blum got Balaji Lenka, another old Schneider hand, to help set up 4,000 stores by end-2012.

 His brief from Blum was simple—“Shake up the system, and go out of the traditional Schneider machine.” Blum knew how the home electrical retail market worked.

Here, decisions would be taken quickly and delivery expected much faster, orders were smaller and hence the existing logistics network won’t be quick enough. There are places in Delhi and Mumbai where a car can’t go, but you need to be there multiple times a day to keep supplying retailers. Also, while it was fine to have a regional office in Chennai to cater to Andhra Pradesh for its B2B segments, that would be suicidal in retail.

Lenka, who had led the distribution side of the business for three years, now became VP, Retail Channel Sales, and ramped up his team. His sales team members don’t have an office at Schneider. “They live in the market,” says Blum, and keep talking to existing distributors and dealers, and making sure they believe in the brand. Another team works on the supply chain by tying up with third party logistics players and having more regional centres.

One such distributor, on the Luminous side, is Hitesh Verma. Verma has been a distributor for the last 13 years.

He says products that are billed today arrive within 24 hours, something that never happened with the old Luminous. There are 600 new people who have joined the sales and servicing force and new one-stop shops for homes are coming up.

In the home electricals’ market, the advice of electricians is often decisive. Blum decided that the rewards programme for them must be different from other companies. So both Pant and Lenka rolled out a programme that does not give immediate gifts, but allows them to accumulate points and buy bigger items.

“This has worked; they feel they got it on their own, and it can be a bike depending on how much sales you get for us,” says Sudhir Thervani, Schneider’s biggest distributor in west Maharashtra outside of Mumbai.

Blum has also been meeting dealers across India to tell them that the company is here for the long haul. Also the B2B dealers, who have been with them for 10 years or more, have spread word that the company is here to stay, irrespective of who the India head is. “That’s important—we get rotated every five to seven years, but the trust in Schneider must remain,” says Blum. For this reason, at every city launch, a top Schneider executive is present to show long-term commitment.

Blum has also understood the value of TV advertisements in India. His dealers had expressly told him that without advertising customers won’t trust the brand. “In China, you won’t advertise a MCB on TV! But here you must do that. You can see that happening during IPL matches,” says Blum.

“Schneider’s acquisition will actually breathe more life in Luminous as there will be longer pipeline of higher quality products,” feels Prof Amit Garg of IIM-Ahmedabad, who tracks companies in the power and electrical space.

Also, Schneider has a 1,000-member strong centre in Bangalore which churns out new designs for products specific to India, and this R&D strength, along with the manufacturing capabilities Schneider has across 31 plants in India, will help Luminous and Schneider have a steady stream of new products.  

Making Acquisitions Work
Till now, Schneider’s core businesses have been power and energy management solutions across infrastructure projects, large datacentres, industries, offices and homes. Under Blum, they have all grown through smart acquisitions. The acquisition of Meher Capacitors in 2009, which made power factor correction equipment, complemented buying Conzerv, a leader in metering solutions.

Together, they helped Schneider get a foothold in the energy efficiency management market. More importantly, these products gave it an access to markets in Asia, Middle East, South America and parts of Europe, where Meher had half its business.

The acquisition of two units of Zicom in 2010 gave a fillip to Schneider’s security solutions for buildings. Its IT business, which offers products and services across SMEs to large enterprises, competes with local players at the lower-end and with global giants like Emerson at the higher end. It contributes to 18 percent of the Schneider pie today.

 The all-important power business, which includes industry automation software that allows big enterprises to manage power, used to be the biggest revenue generator in 2009, and has grown 25-30 percent each year, says Pradeep Karnik, VP, industry business.

The Luminous acquisition is helping to drive exports to enter energy-deficit countries like Bangladesh, parts of Africa and Latin America. “Invertors would be a key area—and there are plans to export that to energy-deficit markets. We had this aspect in mind when making the buy,” says Tricoire. Blum aims to double exports by 2014.

Garg says that Blum has been able to speed up decision-making in a firm that now has over 15,000 employees in India. “He managed to change the mindset of a firm used to dealing with other businesses to one that competes in retail,” says Garg. And Blum has Tricoire’s support.  “In the last two years, we have invested the most in India. It is now the fifth-biggest market for us, and we will continue to invest,” says Tricoire.

Blum says that the soul of the company is the same—to use technology and enable communities to live better. “If you see what we are doing, from industry to retail, it’s all about having better products through superior technology. And there are many more customers to be covered.” Gupta of Havells does not see them as a threat, but calls them a “healthy competition, more like marathon runners.”

Blum feels more at home in India now and has even found enough space around the house to play rugby with his kids. He says that the rest of the year will see faster expansion. “In a rugby game, you cannot win alone. You need to plan, take decisions in a matter of seconds, and stick by your teammates.

In business, this is exactly the same even if decisions are more thought out, but at the end the goal is the same—to win.” This MNC is on its way to be being more local than the locals.