Friday, August 4, 2017

Jairam Varadaraj on making ELGi Equipment world No 2


With his eyes on the Indian air compressor market, managing director of India’s leading air compressor manufacturer, ELGi Equipments, talks about making his company world number two. In a conversation with Sushila Ravindranath, he discusses the company’s expansion plan and adapting the business to digital era and Internet of Things.

Jairam Varadaraj, managing director, Coimbatore-based ELGi Equipments, India’s leading air compressor manufacturer, wants to make his company world number two in the global market by 2027. He hopes to achieve a revenue of $1-billion in the next five years to do that. The current turnover is $238 million. The company has undergone a new brand identity with a new logo and colour scheme for its entire product range, which was unveiled a few weeks ago. The new colours are red and black, replacing the old orange and grey. “Red stands for performance, passion and energy. Black is bold and helps establish a clear brand world,”

Varadaraj says.

ELGi Equipments was established in 1960 as an air compressor and garage equipment manufacturing company. Over the years, the company has grown its product portfolio to suit changing market requirements.

Today, ELGi Equipments is a multi-product, multi-market enterprise that provides total compressed air solutions in all segments and automotive service equipment for garages. It has three manufacturing units, all three located abroad, business presence across more than 70 countries, and direct presence in 18 countries. It makes more than 400 compressed air systems and employs 1,200 people.

Varadaraj is visiting Chennai and has had a series of meetings, promoting the new logo among other things, in Crown Plaza. We meet for coffee and sandwiches at the Cappuccino, the hotel’s coffee shop late afternoon. We ask for strong south Indian coffee to start with. I ask him where his company stands in the global rankings now. “We are number 7,” he says. “50% of our sales come from outside the country. Local business after the slowdown is showing signs of recovery. Large projects seem dead, but incremental investments are taking place. There was the shock of demonetisation. Everybody paused. Now there is GST. We have moved from one complicated tax regime to another. We don’t know how it will be tamed. There are disconnects. Are we ready in a real sense? There are gaps in so many good schemes. We are an incomplete nation. In spite, we can muddle along being a strong Indian company.”

Our coffee arrives. We ask for assorted sandwiches. Varadaraj explains what global leadership means to him. “To become a global leader is a different ball game. You have to acquire enterprise leadership as the Japanese did in the 1970’s and the South Koreans in the 1980’s and 1990’s. It takes time to become an enterprise leader. You have to have enormous perseverance. You need your leaders to be sitting in the countries you are establishing your business.”

In every country Toyota operates, the top man is Japanese. So it is with South Korean Hyundai. Perseverance requires big investment. When I was working on my PhD at the University of Michigan, many of the South Korean MBA students, who were there that time, came to India later to set up new companies.”

As our sandwiches arrive Varadaraj tells me that India has not really built a global company yet. “Global scale is different from being global. We have to decide whether we are strategic investors or portfolio investors. We really don’t have that kind of thinking in India. The company that has become closest to becoming global is M&M. I feel happy when I see their tractors on the fields when I travel in the US.”

Why is Varadaraj confident of ELGi Equipments becoming number two in the world? He tells me that the company has been working towards it. “We are not a known brand. ‘Made in India’ does not exactly take you places. We can’t capture markets by price alone. There has to be a value proposition that is superior. We need to provide quality which is better than others. The warranty on our machines is the best. We back up our warranty with good quality proposals. Then comes service. The service you provide signals permanency. You can’t sell a machine and disappear. You also have to look at being technologically the best. That gives you the right to win.”

Air compressors have to go through discontinuous innovations. These cause a paradigm shift in the technology and the market structure of an industry. It is a new technology applied to solve an existing need in a new way. “We are developing oil free compressors for different applications. In the customer’s mind this looks like an expensive product.

We connect the dots; develop an oil free compressor for which you do not have to pay more. Air compressors account for 10% of energy consumed in the world. We are working on reducing that”.
ELGi Equipments is investing in breakthrough technologies. “Some of the products are two years away, but solid. Information Technology is morphing at a very fast pace.

We are working at adapting ourselves at the same speed to digital technology, Internet of Things. We won’t be left behind. There is ample opportunity to partner with specialist companies.

Varadaraj’s major worry is about the availability of skills. “We can create the processes, but how can we create people. This is a source of concern. Research and education institutions are regressing in our country. We don’t invest in teachers. We are relying on the native intelligence of our youngsters to excel. I send  people out to get training. We conduct a lot of internal programmes. We are putting a lot of building blocks together”.

We are being served some tempting tiny pastries. I pick up a black chocolate cake and ask him why he needs to re-launch his brand. Air compressor is a utility in a factory like electricity. Literally, every factory need needs compressed air, and therefore a compressor.

Do they require brand building? Varadaraj answers. “We are a business to business brand. Conventional brand building methods are not relevant to us. Brand is built by the customer’s experience. Visual representation of the brand provides familiarisation. We have just launched a visual experience.”

The company has just created a branding project with an emotional dimension which also reflects the company’s competence.” We are experts in air. Can we make the national flag fly all the time in Delhi’s Connaught Place?

Even the White House flag does not fly all the time. Can you imagine the Indian flag flying doing that at the Wagah border? We have made the flag fly in our factory with low energy sustainable compressor. We are converting that technology to fit into any flag pole.


As Varadaraj is finishing his coffee, I ask him why he will not think of diversifying. “Indian air compressor market is worth $600 million and the global $15 billion. Both are growing fast. Why would we focus on anything else?”
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