Time & Date: Noon, early August 2001
Venue: MIT, New Delhi
People: Leading beacons of the Indian IT industry
Issue: Meeting with Pramod Mahajan, minister for IT and telecom, to discuss issues pertinent to the Indian IT industry

On that fateful day, industry captains were informing the minister about the problems faced by the software and hardware sectors—and outlining what the government could do to help out. Issues like rationalizing tariff structures, need for the government to step in to push demand, and the threat posed by China were discussed at the meeting.

At this juncture, Mahajan turned to Moser Baer managing director Deepak Puri, who was representing the hardware-manufacturing players. He asked Puri—"What are your views on the problems faced by the hardware manufacturing industry. And what are the possible solutions to pep up this segment." The reply came fast, "Mr Minister, we don’t have any problems." It was sometime before anyone spoke, and the possible translation of his reply, as read by the other industry captains, was that he was trying to score "brownie points" with the minister. After all, wasn’t Puri worried about so many "intrinsically Indian problems"—lack of basic infrastructure, infrequent power supply, high customs turnaround period...

Ask Deepak Puri about that meeting and he just laughs. "Problems are part and parcel of the any industry, and people need to work around them. There will always be handicaps, so do we sit and crib about them...or do we get going and do business?"

Take the power problem, one that has affected every Indian corporate and consumer. Puri’s solution was simple, fast and unusual—build a power plant. But that’s easier said than done. Sure, Puri’s seen the good old socialist days, where largescale manufacturing was only in the domain of the government, where capitalists were looked down upon and license raj was the order of the day. Comments Puri, "If I could work in those days, current issues suddenly look less frightening. Let’s look at how we can leverage the huge advantage India has—I am sure no other country in the world can boast of availability of low cost-to-company and an excellent pool of human resources."

That’s where Moser Baer seems to have made the difference, and proven a point. While India will continue to face constraints in terms of low-end hardware manufacturing, the country can still be a major force in terms of high-tech manufacturing.

How it all began…
And here’s how Puri—hailing from a family in Punjab with firm roots in government service—ended up running one of the largest media companies in the world. "I realized that I was far too ambitious to work for anyone." But he had had his share of misses before the big hit came to pass. Given his mechanical engineering background, he started a venture in the precision tool segment in Kolkata. This had to be shut down due to labor issues. Next, the family shifted to Delhi and Puri—with the entrepreneurial bug still intact—started a company in 1983 in technical collaboration with the Switzerland-based Moser Baer AG. Moser Baer started out as a Time Keeping solution company, but Puri soon realized that the market was not big enough and growth possibilities were limited. And then storage fanned its way into Puri’s life, literally. On a hot day, sitting at his friend’s office at IBM, he saw an 8-inch "something like a fan" and was quick to use the same for some relief from the scorching sun. He was reprimanded for this action for it could have cost hisfriend some valuable data. Puri saw that the 8-inch fan was inserted into a huge box and data could be accessed. Soon, business potential overtook curiosity and Puri landed in California to talk to Xidex—the largest manufacturer of audio/video media. And thus began Puri’s tryst with data storage. He started manufacturing floppy diskettes out of India but had to face a whole lot of problems. Given the days of license raj and SSI preference, Puri was given a license to manufacture 50,000 units per month. Puri needed no market research data to figure out that since the Indian market was practically non-existent, "competing with global players at such low capacity utilization rates was foolishness".

ALL ABOUT APPRECIATION: A block of Moser Baer shares bought in 1998 for Rs 1 lakh would fetch you Rs 13.3 lakh in the open market today. That’s a cool 1,200%-plus growth and a CAGR of over 90%—in these slowdown times!

Also, the response Moser Baer got from global customers when it made enquiries was astounding—it bagged an order for half a million diskettes at one go. For Moser Baer, with an annual capacity of little over half a million, the implications were clear—sell the products at once and shut down the factory for the rest of the year. Puri took the next logical step in a country trying desperately to promote exports and moved to the Noida export-processing zone. From then on, life has been in a fast lane. The company moved from 8-inch diskettes to add 5", then 3", and then 2" (which never made it to the market).

Extension of the magnetic media product portfolio was the next move and Moser Baer began making audio/video tapes.

Looking beyond magnetic media, the company saw opportunities in the optical media space. However, the market was in its infancy and, in 1996, the management, after evaluating its resources and the risks involved, decided against getting into manufacturing the product. However, a year-and-a-half later, Moser Baer saw huge opportunities and decided to take the plunge into the same space. But here again, there were obstacles. When the company started its due diligence, the sale price of CDRs was about $7 apiece. Within three months, the price crashed to a dollar—and the problem was that the manufacturing cost was a dollar-and-a-half. Also, the company was looking at an annual capacity of 30 million units, while the global demand was pegged at 60 million. So here was a Rs 60-70-crore organization keen on investing Rs 300 crore to provide nearly 50% of the global demand, and that too products sold at prices lower than the manufacturing cost—Puri had clearly hit upon a magic recipe to become a millionaire fast, since he was already a billionaire!

Says Ratul Puri, executive director of Moser Baer, "A lot of people felt that setting up half of the global demand did not account for good business sense, and were waiting to write our obituary." However, the Puris had read the market right and the rest is history. Revenues and profits have been growing at over 70%. Net margins are at 30%-plus—something few software companies can boast of. "We are in the hi-tech game and profit realizations are high," adds Ratul.

How was it done?
Hardware manufacturing, exports, and India make for a troika that has seldom belonged together—about the only companies that have bucked this trend are Mumbai-based Celetron and Moser Baer. But how did Moser Baer emerge as a global player? "A key reason was that I had realized we had to master the art of mass production," says Puri senior. When the company started manufacturing floppy diskettes, its annual capacity was 600,000 units. Today, its daily production is over three million units. With huge capacities came huge economies of scale and today, Moser Baer can supply the same quality as anyone else, at a substantially lower price. Also, the company invested in creating a state-of-the-art facility. Says Moser Baer president PM Pai, "I went and saw the facilities in Noida and was convinced about my new workplace—my skill-sets of high tech manufacturing were met by this company."

Another key factor was customer satisfaction—"another clichéd term, but a trait that made all the difference". Says Puri, "A customer doesn’t want to listen to excuses about problems in India. Even in the early days, we tackled issues like opening LCs, import export procedures and other irritants of doing business in India quietly and fast." The strategy paid off—today, Moser Baer is a top OEM supplier to the likes of BASF, Nashua, Boeder and Dataright. But the biggest success determinant has been huge investments in R&D. Moser Baer has an annual 3-5% spend on R&D and, currently, has a team of over 100 people to do just research work. Says Pai, "We are a knowledge-intensive company and our employee requirements are not simple—no assembly line workers, only process engineers and doctorates."

But the creation of global benchmarks comes at a price—Moser Baer no longer has the luxury of calling in an expert or using reference material... it has to go it alone. Its up to the R&D team, therefore, to make the difference. For instance, when the company decided to get into the CD-R business, it imported the technology from a Japanese company. Within a few months though, it junked the technology as its in-house team had improved over it significantly. And this sort of work opportunities have seen it show amongst the lowest attritions rates in the business.

So what next? Ramping up. The company has already finished ramping up production to 750 million units and aims to take this up to 1 billion units at the same project cost. It is setting up a plant in Germany to move into the value-added packaging segment of optical media business, and thanks to this new plant, will be able to provide a complete gamut of services to global customers. Says Ratul, "The next few years will be interesting." Sure thing.

Yograj Varma In New Delhi

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