New Delhi: Sunil Mittal, the force behind Bharti Airtel, the largest mobile phone company in the world’s fastest growing cellular market, will formally step down from his chief executive role at the firm in two weeks.
Mittal’s decision will make way for CEO-designate Manoj Kohli to take over the reins at Bharti Airtel, which is now India’s third-most valuable stock market-listed company. The decision by 49-year-old Mittal is the latest in a series of moves the entreprenuer had set in motion four years ago when he surprised many by saying he would withdraw from active management of the company. In an extended interview with Mint, Sunil Bharti Mittal talked toJosey Puliyenthuruthel and Anjana Menon about his plans, his vision and what comes next. Here is the full transcript.
You said some years ago that you would get out of actively running telecom. Where are we on that?
We’re on course. Four, five years we started putting the process in place. I’ve always said there are three pieces of business and as an entrepreneur you do all three at some stage. I was committed not to do all three: governance, strategy and operations. I left operations four, five years back. Strategy, I was involved in but that has been getting ejected from my office. Then, I said at 50, I’d be out of strategy and operations, and the only thing I’d be involved with was governance.
By and by, empowerment has happened. Today, Manoj Kohli has a Airtel management board of 12 people; they run the company. We have one management council meeting now where Manoj comes and discusses the key issues that need to be discussed. We’re now on our way to announcing Bharti Enterprises’ structure; the proposal’s on the way to the Bharti Airtel board. Bharti Airtel corporate office will elevate itself to be the Bharti Enterprises board. Rajan is transferring out of the telecom joint managing director role into retail 100%. We’re moving to this Bharti Enterprises structure that we’ll unveil in the next 15-20 days.
What role will you play then?
As chairman of the group. The only CEO role I have today is that of Airtel; that has to be given up now in a formal way but now will be. I am the designated CEO of Airtel today but the fact is that I don’t act as the CEO.
Who goes into your shoes?
Manoj Kohli. He’s de facto CEO; he’s not been formally appointed that yet but now will be.
What about Akhil Gupta then?
Akhil will be the person who’ll look after telecoms from the Bharti Enterprises corporate office
You don’t look like you have a job.
(Laughs) Our concept of being directors is on the lines of Tata, ITC, Birlas and some international companies. Ours will be a light touch, mentoring role. The purpose is to ensure that shareholders’ and boards visions are met in the business as in continuous oversight and governance is supplied. Running the business is Vinod Sawhny’s (the chief operating officer of the Bharti’s retail business) job, for instance. Rajan is not going to run the business.
The Bharti Enterprises corporate group will look after the strategy of the whole group, not of any particular business. For example, if Bharti Airtel wants to go and expand out of India, this is the group that will look after it, not Manoj Kohli. Issues of developing new partnerships like Wal-Mart, AXA, Rothschild... this will all sit here. Large fund raising, investor relations, government relations and regulation will all sit here. If Manoj needs $5 billion, he doesn’t need to stretch for it; he just asks for it and if it’s agreed on, corporate office comes in.
A good test of this structure will be next year when I take over the presidency at CII (Confederation of Indian Industry, India’s largest industry trade body). One year is going to be heavily consumed in it: you have 100 days of travel and every other day, you’re sucked into something.
Today, if you see Ratan Tata or Lakshmi Mittal, they are all CEOs of their companies. The question is are they really CEOs? In my assessment, they put in less time in knowing their businesses than I do. If I feel I am not a CEO any more of my business I think they are also not CEOs. Managment gurus and others say you need an iconic person as the CEO just for the machinery to work.
What moniker would you have for yourself?
I’m currently group chairman and managing director. That title is, in a sense, future-proof. But would you change that to, say, in line with international practices, group CEO? Possible.
You’ve come from behind and build this amazing business in telecoms and now are trying to do the same in retail. Your skills at fire-fighting will obviously be in handy because you’re going to come up against big rivals like Reliance who will stick their elbows out. At that point in time, do you think you have a team in place that will go out there and flex muscles without you being actively involved?
We don’t have to be sleeves-rolled-up in the business now. There was a time that was required. Today, we can serve that particular cause better by sitting here, because fight(ing) large business rivals in the market has got to be the job of the operating people. They need to have best-in-the-class merchandise, best pricing, best locations... this is done by experts and, at the end of the day, that wins the market. We did that in Airtel and did it ourselves because there was nobody else to do it, but today we can attract the best talent.
Now, curve balls that come in the marketplace will be dealt by us. We will secure the operations...that’s our job today. We’ll tell the operations guys: don’t worry, go and do your operations. That’s very powerful.
Your tie-up with Wal-Mart has clearly kicked up a bit more of a political fuss than you’d have liked.
No. We’d anticipated this. In fact, I’d say given the credibility we enjoy in India, given the work we’ve done in India which is highly appreciated, I think it’s been quite an easy walk.
Would it seem from your stance today that you’ve become a little more cautious in your association with Wal-Mart?
No, not at all. We hosted them here in full public view. (Mike Duke, vice chairman of Wal-Mart visited India last week.) We had meetings with ministers and bureaucrats. I hosted a dinner for him with 100 people.
But in terms of business arrangements...
That has undergone no change; that’s exactly the plan. There’s a joint venture plan for the back-end supply chain and cash-and-carry where FDI (foreign direct investment) is allowed. They will provide us technology and support for the front-end. It remains exactly the same.
You may not be able to use their branding.
Why not? There’s nothing to stop us. But will we use it? It not a decision we’ve taken. If the (market) research says Bharti Wal-Mart is preferred, then we’ll go with Bharti Wal-Mart. If the research says it doesn’t matter, then possibly, it doesn’t matter. The research is going on now. The brand name will come up when the first store does. When Reliance launched Reliance Fresh, nobody knew about it. So, there’s always good to have a bit of mystique.
Have you firmed up the investments retail will take?
Those meetings are on. In fact, Rajan is in London with a whole team in discussions. We need to sign the legal agreements first. That process is underway. Then, the board meeting of Wal-Mart and our board meeting has to take place. Sometime in March, it will be ready. The front-end details of the venture have been announced and we’re feeding that into the Wal-Mart system to see what areas we’ll need support in.
Why does Wal-Mart need you to go into the cash-and-carry segment? They can go into it with 100% FDI under the rules.
Look at what they’ve experienced in Germany and Korea. (Wal-Mart pulled out of Germany and Korea last year to close loss-making operations there.) I think it is very clear that their strategy is to have a local partner. There was a time when Wal-Mart would not do a joint ventures. This is breaking religion for them...having an equal partner. They are very clear that they need somebody who knows the local ground realities. They don’t say it, but Germany, Korea... must have been pressure points for them to make this decision.
India is an important market and it’s so far (from the US) and they’d rather have a partner on the ground. Then, hopefully one day, the government will look at opening up FDI and that’s never going to be 100%. That must be their assessment as well. Will it 26% or 49% that’s the only question. They need somebody then why not start a relationship with someone on the ground right away?
In fact, Wal-Mart will end up procuring large amounts, multi-billion dollars-worth products and produce from India. Clearly, they will benefit by combining strengths in procurement whether it is for the local markets or exports. The fact that they brought us back from the brink of an announcement with Tesco clearly shows how much they wanted us.
In fact, what was all that about? What swung you towards Wal-Mart?
Scale, size and speed are what went in favour of Wal-Mart. Wal-Mart wanted to do a big India. For us, anything small did not make sense. Tesco’s initial plans were to test the waters.
Cheap prices are Wal-Mart’s plank and that’s where India fits in. If you walk to a Wal-Mart store, pick it up and plant it here in India, it will work. With Tesco, you will need to Indianise it; Tesco’s a very high-end store. If you go to Thailand to see Tesco, they’ve brought it down. But Wal-Mart, you just plant it here and it works: bulk in, bulk out at low prices. It works fine.
What about space? Are you getting partnerships with builders that you build malls for us?
The good news in the Wal-Mart format is that they are always slightly out of the city. The Indian ‘big boxes’ are all coming at the end of the city. Bharti Retail will be also at the end limits of the city. For the two-three ads we’ve put out, we’ve been deluged with offers. Availability is not an issue. Every builder--Ansals, MGF, DLF--are all talking to us. Then, we have Bharti Realty, which has a reasonable portfolio. That company is already gearing up to supply some space for Bharti Retail.
So, getting space is not a problem; how expensive will be is. In this business, the margins are wafer thin. If the rentals don’t work, it doesn’t work at all because you cannot ramp up your sales per square foot beyond a point. So, you have to assess your rental carefully. Rentals typically will be Rs 25, 30, 35 a sq.ft a month. Currently, some of the number in some of the locations are higher.
How do you combat that?
We’re working on it. There’s some softening of rentals already happening.
What is the one thing that you worry about in retail?
Infrastructure is the only thing. How can you link your supply chain efficiently with your stores? Most of the retailers currently are making losses because the scalability of operations is not happening because of lack of infrastructure. That’s an issue and that’s where our joint venture will come into play to ensure that linkages with producers and suppliers are efficient.
Any other risks?
This is a business of an efficient supply chain and scale. You need to have these two on your side. That’s the core of this business. Without this, it is a very thin margin business and you’ll have trouble. And, it’s not that you recoup that over a period of time. If you make huge losses in an inefficient supply chain and very modest size of sales, then you’re in difficulty. You have to ramp up the top line very quickly. Reliance is doing that; I think they’ve understood this game. So, you need to ramp up your top line and for that you need a great supply chain. If you can do that you can be efficient in your procurement because of economies. Then, you cut your 4-5% (margins); that’s the game. Tesco is at 5%, Wal-Mart is at 4.5%...on those volumes.
Given that supplies are so fragmented in India, how do you propose to get that efficiency in your supply chain?
You can get to 30,000-40,000 SKUs (stock keeping units, jargon for different kinds of merchandise) because there is P&G, Levers and there are others. Then, there is the fresh (produce) linkages we can do more efficiently that others (because of a farming joint venture Bharti started two years ago). Dairy or meat is the part that is semi-organized. Then, of course, you have to add pins to wrenches to nuts and bolts.
Geographically, where will you start?
We’ll mostly concentrate in north India. There will be one cluster of stores coming up first. We’ll assess which is the best cluster to start off -- Delhi and around Delhi or Punjab or Delhi and Agra belt... That’s all being discussed.