By Deepti Chaudhary| Aug 18, 2016
Driven by the mobile phone business, the India arm of the Japanese consumer electronics giant is expected to double its contribution to the company's overall topline in two years
Panasonic Corp President Kazuhiro Tsuga is widely credited for pulling the Osaka-based consumer-electronics giant back from the brink and setting it on a path to profitability. For the 59-year-old, India is a key market. The country’s importance can be gauged from the fact that, from the current over 2 percent, Panasonic India is expected to more than double its contribution to the Japanese firm’s topline by FY18. In FY16, Panasonic Corp registered a net profit of $1.6 billion on sales of $63 billion. Tsuga and Manish Sharma 44, president and chief executive of Panasonic India and South Asia, spoke to Forbes India about the Indian market, changing customer behaviour and the company’s core areas of focus. Edited excerpts:
Q.How has your focus changed in India over the years? How is the market looking right now?
Tsuga: We started gradually in India…. with light assets. Panasonic India showed results step-by-step so that the Japanese side could have trust in the India operations. Then we decided to invest in a new factory for air-conditioners (ACs), washing machines… we made various alliances with business partners, re-entered the mobile phone business. So, carefully we started a new history in India. Our growth has become more stable and the brand image of Panasonic is getting stronger. The important thing is that from the growth point of view, India is leading the entire Panasonic [business]. Frankly, the China business is having a hard time. In India, our asset is rather small compared to China. So with high speed and good business partners, we can change easily.
Q. How is the consumer evolving in India, a very competitive market with some strong domestic and global players? How do you gauge the changing expectations?
Sharma: We are a very large country and here, fundamentally, there are consumers with a thought process. But consumers keep evolving, especially in the information age, where the digital and social environment is such that information is shared on a real-time basis. Therefore, loyalty is no longer what it used to be, probably 10-15 years ago. You have to keep updating yourself all the time to catch up with the pace of customer expectations. This philosophy is very much applicable to things like mobile phones or personal grooming products. It is extremely important to understand how customer behaviour and their expectations are changing all the time. Therefore, insight collection is very important. And so is utilising the social network capabilities. Second is the customer relationship management (CRM) capabilities which we have created and also the feedback [that we get] from our existing customers through our after-sales network. Using this information for our future product planning is what we are trying to achieve.
Q. What will drive the company’s India revenues?
Sharma: The idea is to identify the core opportunities in India. One of them is the smartphone [business] and the second is energy storage followed by security and surveillance, especially considering the current societal changes. Of late we have started to understand that India is no longer energy deficient; that’s just the gap between demand and supply. But that doesn’t specify the gap between supply and peak demand. So, energy storage happens to be one of the extreme focus areas for us in India. We have core competency of product development, starting from the cell level to the module level in Japan and at this point of time, we are using those capabilities.
Q. How important is the smartphone segment for Panasonic in India?
Tsuga: Smartphones are very important because this country and also the surrounding regions--ISEAMA (India, Southeast Asia, Middle East and Africa)--have a very young population. In Panasonic India, the average age is 29; it is 45 in Japan. We have to make the Panasonic brand more popular for the young generation. How can we tell Panasonic is your brand without smartphones? The smartphone business was heavily managed in Japan with NTT Docomo, our customer. But since every device becomes commoditised and uses the same platform, there isn’t so much differentiation. So, we withdrew from the Japanese smartphone market. But as far as our smartphone business in this country is concerned, it’s getting bigger and bigger from the volume and product point of view. Our smartphones in India are much nicer than what we had in Japan… it’s amazing.
Q. Could you elaborate on your energy storage and surveillance offerings? What kind of products are you looking at?
Sharma: Storage is needed everywhere. Each one of us will be carrying gadgets which will require energy storage. However, currently our focus is on the mid and large area. I am sure you were referring to a recent announcement which was a joint venture with an American company called AES. This would be India's first large energy showcase, highlighting that storage can go up to 10 MW and beyond, if multiplied. In May, we set a record for creating solar capabilities. So, we are preparing ourselves for the large energy storage. Second is the telecom infrastructure in India. The current mandate says that the uptime should be 100 percent, typically it says 99.999 percent and there is a huge dependency on diesel generators. They are guzzlers and not in line with the environmental policy which is evolving at this point of time. So, that is another area where we are proposing lithium-ion-based backup solutions and a significant amount of progress has happened in the last three years. Today, Panasonic is leading in developing products and executing projects in the telecom vertical. And third is banking and then hospitality and hotels where there is a mission critical application and also data centres. The third application is UPS. So, replacing the existing lead-acid battery backups with more sophisticated, more environment friendly and larger lifespan lithium-ion battery solutions. This is the focus area in India and I'm sure India would emerge as one of the largest opportunities as far as lithium-ion battery storage solutions is concerned.
Needless to say, homeland security is one of our major challenges, among society and across the borders too. Those are the focus areas. Apart from that, retail is obviously evolving, security at home, security and small and medium enterprises (SMEs)... so we will focus on both, not only on homeland security but also on retail requirements on security and surveillance.
Q. There is a strategic plan of investing 1 trillion yen across Panasonic. Are there any plans to invest in India?
Tsuga: Out of 1 trillion yen, we will prioritise [where to invest] in terms of business areas like automotive and energy. These two are our biggest areas to invest in. We’ll spend more than half the amount on these areas. B2B service industry is another area we are looking at. In India, energy is probably the biggest area. The 1 trillion yen is the money that we have to invest up to 2018, but the big growth in India will come after that. Maybe then India will become a centre of investment.
Q. What could be the major challenges in your business plans?
Sharma: It's a level-playing field… as far as I understand, the challenges would not be very specific to Panasonic. From my point of view, there are more opportunities at this point of time. So I'm extremely confident of executing what we are aiming for. But specifically, we would be very closely observing the policies which are being rolled out and especially looking at areas like energy storage and how favourable the policies evolve, especially when we talk about grid level storage or let's say the frequency regulation area. The government has to provide more suitable policies in line with creating this kind of market for such products.
Second would be an external threat or a challenge. I feel that an impact of any possible further slowdown on China may have an impact in India. That could be another possible threat to the Indian market. But looking at the recent past, the government is keeping a very close watch on that particular aspect and I’m sure with the kind of policies that are there, we will be able to insulate ourselves.
Q. Which products will be the key drivers of your growth in India?
Sharma: Mobile phones would be the fastest growing. In just about two-and-a-half, maybe three years, we have crossed a level of sales of about Rs 120-Rs130 crore monthly, which translates to the total sales of about Rs 1,200 crore we did last year. This year, we are looking at Rs 2,000 crore, which would be approximately 35-40 percent of the consumer business revenue. So, that would form the biggest pie of business and in line with the potential of the market. From the market share point of view, air-conditioners would be at the forefront. With our AC business, we have a market share of close to 10 percent… we are a very strong No 4 brand in the country right now followed by TV which has a market share of about 8.5 percent. Growth would seem rather big for categories where the base is small. So when you talk about mid-term window, that is 3-4 years; our major focus areas are mobile phones, energy storage and consumer businesses.