New Delhi: At a time when companies are facing calls for higher spending on research and development (R&D) and patented technology, Tata Steel Ltd spends less than 1% of its consolidated revenue on R&D. But Mark Bernard Denys, chief of R&D and scientific services at the steel maker, says that when tightly focused, this expenditure is sufficient to be ahead of the curve and please the most demanding of clients, such as automobile makers.

Innovation edge: Denys says being a follower will soon become more risky for companies than trying to lead as the global steel industry gets more and more savvy about intellectual property.

The over 100-years-old Tata Steel is pushing hard for growth amid fears of recession in the global economy, hindrances over land clearance for local projects and rising cost of raw materials, which are challenges Denys’s work could help meet. Edited excerpts from an interview:

How important is R&D for steel manufacturers? What is the ideal spending any steel company must have on R&D? As against this, what is the current spending on R&D in India?

There are many different players in the industry and the role of R&D depends on the chosen product-market strategy: low-cost commodities or value-added premium products.

Also See | Steel firms’ R&D spend (PDF)

It is a simple choice between being a follower who buys technology or a leader who pioneers new products and technologies. Some companies try to be fast followers, but I am not a great believer of the “middle road". In my opinion such aversion to risk also creates an inability to spot trends early and react quick enough. Today the global steel industry is getting much more savvy about intellectual property; particularly in Japan, Korea and Europe. We have recently seen several major patent battles in the courts of Europe. Some latest technology is simply not available, unless you are willing to share a piece of the pie. In that sense, being a follower will soon become more risky than trying to lead.

It is clear that the Indian steel Industry will have to grow its R&D activities and focus more on creative innovation rather than catch-up. But it is impossible to say what the ideal R&D expenditure should be. Rather than discussing inputs, it is more important to question its focus.

Lately there has been talk in the industry on the urgency to pursue R&D. Why so? And why now?

These are exciting times for the Indian steel industry. We experience unprecedented growth opportunities in all our markets. At the same time, we face substantial long-term challenges in the form of tight raw material supplies, increasing cost for energy and the need to develop an adequate response to climate change. There are also challenges and opportunities that are unique to India. For example, the high alumina content in local iron ores, the lack of high grade coking coals, the opportunities of frugal innovation for the rural masses, the demand created by the growing middle class and its unique aspirations for mobility, comfort, etc. All these issues need strong innovation.

Indian steelmakers seem to be lagging behind in producing specialized steel. Therefore, there are imports of such grades and the industry is threatened. What are the immediate steps companies can take to mitigate this?

Producing specialized steel grades require large and consistent investments in R&D and equipment. Such commitments can only be justified when the market volume is there. Until recently, demand for premium grades was relatively small. At present it is picking up fast and today any void in local supply is eagerly being filled through imports.

I see this as an aspect of the transition that we are in. Expansion projects by local steel companies have been delayed for various reasons. Tata Steel’s projects included. But once complete, you will see that local customers prefer to buy local. It results in more timely supply and often a somewhat lower price too.

So the trick is to catch up fast and to replace foreign imports. Our combined R&D in India and Europe is developing a pipeline of new products to be introduced in the coming years when our Jamshedpur expansion project and our new greenfield mills in Orissa are completed.

Luxury car makers don’t trust Indian-made steel and import car components. Do you believe one day these luxury car makers will buy Indian-made steel for their Indian units?

It is not right to think that luxury car makers are necessarily the most demanding customers. Instead, car manufacturers that are volume producers and, at the same time, fully committed to quality, tend to be far more difficult to satisfy. Toyota is one such company. Tata Steel is proud to supply to Toyota and all major car manufacturers both in India, Europe and the US.

The fact that some luxury car makers import their components is not a matter of trust. Many car makers are slowly evolving into design studios and assembly lines. Some even outsource assembly. In this operating model, they are dependent on a very close knit network of suppliers. Starting an assembly line in India takes less time than developing a network of local suppliers, particularly when volumes are still relatively small.

So in short, it is just a matter of time until they, too, will start sourcing from India. Already there are many car component manufacturers in India that only produce for exports to Europe or the US.

In what ways is Tata Steel using its R&D fund? What kind of products will we see in future?

Breakthroughs resulting from R&D are just the tip of the iceberg of innovation: 90% of innovation is below the waterline. This is the continuous improvement of existing technologies and existing products. The future success of any company requires both forms of innovation.We focus our R&D in India particularly on the development of advanced steel grades and advanced coatings. By making better, cleaner and much stronger steels, we enable cars to be safer, lighter and more fuel efficient. We are also developing coatings that make steels more durable or give new functionalities. For example, a self-healing coating for prevention of corrosion; after scratching it again repairs itself like a living skin. Another example is a thin coating with photovoltaic properties. This will create very low cost solar cells for our roofing products. Exciting new opportunities that one day will be commercialized.

A second key area for R&D is to develop new technologies to make best use of local raw materials. Here we are pioneering new technology to reclaim iron ore values from ultra fine fractions that are at present discarded as waste. We are also breaking new grounds in technologies to refine and upgrade low grade local coals to high grade clean coals. We are also very active in developing new technologies to reduce emissions further. Our R&D in Tata Steel Europe is a leading partner in the Ultra Low CO2 Steelmaking project, a consortium of 48 companies and institutes. Together we develop radically new technologies to reduce CO2 emissions by 50%. Together we have already spent 450 crore in exploring new technologies, and we have taken the first steps to start industrializing the ironmaking technologies of the future.

What technology will Tata Steel use for its new plants in Orissa and Chhattisgarh?

The 6 million tones per annum Kalinganagar greenfield plant in Orissa will use the latest technology to produce premium flat products such as API (American petroleum industries), Dual Phase, TRIP (transformation induced plasticity) steel and other advanced high strength steel that we are at present developing. We will produce both coated and uncoated steel strip to specifically care to the future needs of our customers in the automotive and the engineering segments.

It is too early to comment on Chhattisgarh as we are still in land acquisition stage.

What is it like to work in India?

I am often asked about the differences with Europe. Obviously it is different, but one should not dwell on this. It is human nature to focus on the few differences and ignore the many things we have in common. Steel is steel and researchers are researchers. We all want to innovate, to finish our projects, to please our customers and to grow personally.

But surely there must be important differences between Europe and India?

What I like in India is the strong desire to do good research, a desire to question, to understand and to explore. This I sometimes missed in Europe, where due to limited growth and margins we need to be far more pragmatic and results-oriented. Here it seems that we believe more strongly in the promise of new technology, and we dare to act on it.

On the other hand, our “hands on" approach to R&D in Europe is also very powerful. In Europe our researchers are superbly connected to the colleagues in operations, we talk their language and they readily come to us for advice. So really, there are strengths on both sides and great possibilities to learn.

PDF by Sandeep Bhatnagar/Mint