Roland and Berger Strategy Consultants GmBH started its India operations in March. In an interview, Ralf Kalmbach, member of the company’s global executive committee, and Wilfried Aulbur, its India managing partner, spoke about the importance of the company’s operations in the country, their perception of the domestic auto market and the firm’s contribution in turning around Jaguar Land Rover Plc.—the British luxury car firm that was acquired by Tata Motors Ltd in 2008 from Ford Motor Co. Edited excerpts:
How important is the Indian market? Why did you take so long to establish an independent set-up?
Kalmbach: We have been associated with the Indian market for some time now. Our formal entry here was through a joint venture with the Tata Strategic Management Group (consulting arm of the Tata group) in 2009, but we realised in the initial phase of the joint venture that our expectations from India were more ambitious and hence decided to part ways amicably.
Which are the industries you will be focusing on?
Aulbur: We believe very strongly in building industry competence. We will be focusing on sectors like manufacturing, energy, chemicals, utilities and financial services. We will be helping companies in these sectors with their market entry strategies, performance optimization, mergers and acquisitions, etc.
What was the impact of the Jaguar Land Rover turnaround?
Kalmbach: Globally, in a majority of the markets, we are well-known. Roland & Berger is the No.4 in the accounting and strategic business.
Our global automotive practice has been covering all major markets worldwide—one of the reasons why the Tatas reached out to us for this important turnaround.
Together with the team of Tata Motors and JLR, it was a successful experience. Our target was not only reworking strategies but also developing new ones.
Upbeat on prospects: Wilfried Aulbur (left) and Ralf Kalmbach of Roland Berger. Abhijit Bhatlekar/Mint
With an assignment like JLR coming out with best practices benchmark, there is a lot to learn for companies like Mercedes, Porsche and BMW in terms of the possibilities that exist for improvement.
At the same time, knowledge coming from the US and Germany can be utilised by Indian companies.
Similarly, companies in mature markets like Europe can learn a lot from successful firms in India about concepts like lean manufacturing, frugal engineering, etc.
They (companies in Europe) are struggling on the delivery side as their products are over engineered as they are not meeting customer requirements.
How big will Roland & Berger’s team be in India?
Ralf Kalmbach and Wilfried Aulbur of Roland Berger talk about their focus in India and their experiences with the country’s car market.
Aulbur: We have around 20 people, but hope to grow to 150-200 people in the mid-term.
Can you name some of the auto firms in India you are working with?
Aulbur: We have been working with Volkswagen and MAN Truck and Bus AG—looking at their product portfolio, strategic vision for 2020, areas of operations, their deficiencies, etc. We are also working with Indian companies on their mergers and acquisitions strategy to ensure sustainability by helping them with due diligence and strategy execution.
How do you view the Indian auto market?
Kalmbach: It’s a difficult market as things stand today but it’s not the only difficult market. Others are shakier. The political situation and high petrol prices in India make it difficult to foresee the future.
On the corporate side, a missing framework and a stable policy environment make it hard to make an investment decision. But fundamentally, we believe the growth prospects are good.
Some of the key markets in Europe have seen demand contract significantly. France, for instance, has been down 20%, Italy 20%, Germany 7%—that makes India, for companies from these countries, a key investment market.
India has been touted as a hub for small cars. However, with the compact car market contracting month on month, do you think the story is still intact?
Aulbur: The entry level car market continues to be very big in India, so nothing much has really changed. As far as exports are concerned, they are important for two reasons—they help in deeper market penetration.
Second, exports are needed to generate the kind of scale you need to be able to compete in the price aggressive Indian market.
Transaction prices in India are half of what we see in Brazil and China.
Kalmbach: The automotive industry is driven by scale—you need to have a capacity of at least 200,000 to 250,000 to build a reasonable business case.
One of the reasons why India has not taken off as small car hub the way it was expected is the lack of a stable political framework.
With auto makers in India adding capacities at a time when demand is sluggish, do you think the industry is headed towards a capacity glut?
Aulbur: This is an industry where you need to put in a lot of investment to build capacity. If you do that, you will have excess capacity in the short to medium term.
We still have a low car penetration compared to rest of the developed markets. To my mind, India will be the third-largest auto market in the next eight to 10 years.
Kalmbach: You also have to keep in mind that there is not a single market globally which is not facing over capacity. Investments are always ahead of demand. Over capacity, on an average globally, is typically around 20%. In the current scenario, it’s higher—around 30%.