United Technologies is Quickening its Steps in India

For the longest time, United Technologies (UTC) a $53.2 billion company appeared to be content with its pioneering history in India. Its subsidiaries installed the group’s first elevator in 1898 at the Raj Bhavan in Calcutta, the first set of air conditioners at the Rambagh Palace in Jaipur in 1930, and delivered the first S-55 helicopter to the Indian Air Force in 1954.

But until 18 months ago, few knew UTC as the parent company of such powerful, acquired brands as Otis, whose founder Elisha Otis invented the modern elevator; Carrier, whose founder Willis Carrier created the first large-scale electrical air-conditioner; Sikorsky, founded by aviator Igor Sikorsky who designed the first successful helicopter; and Pratt & Whitney, an innovator in jet engines.

In the recent past, however, when fellow multinational companies made a beeline to India, beating their chests with battle cries for market share — a move accentuated by sluggish growth in Western markets — UTC watched demurely as competitor General Electric, a $157 billion behemoth, revolutionised the face of global outsourcing and R&D with its India investments.

By contrast, UTC grew steadily in China, reaching current revenues of a modest $3 billion through more than 40 local partnerships. Next door, the Tiger was roaring, but the group held on to everything that went against first mover advantage: Centralisation of decision-making and execution, low thrust on product localisation, inability to capture market share through cross sales, insignificant investments in local R&D, and slow pace of acquisitions and joint ventures, all of which GE, which  launched its first air-conditioner in India last year, had turned into case studies at business schools.

But there’s good reason why UTC is a Wall Street darling. The conglomerate is known among analysts as a silent giant, a juicy cash cow and a conservative player who risks the least at the board.

Therefore it comes as no surprise that UTC would test infrastructure-ready China first — a market that offered fertile ground for commercial sales — although its military segment, unlike in India, was out of bounds to US corporations. Ten years ago, UTC’s revenue from China stood at $500 million, the same number currently from India. Executives are gearing up with startling alacrity to meet a five-fold growth of $2.5 billion by 2015. Meanwhile GE is gunning for four times that amount at $10 billion by 2015.

It was only last year that the tortoise quickened its pace. UTC opened an India headquarters in New Delhi headed by Zubin Irani, managing director (commercial), under the temporary oversight of US-based Jothi Purushotaman, president, India, whose mandate from the chairman and CEO Louis R. Chenevert was to empower the team on the ground, a bold move for a bureaucratic organisation that is making strides in de-centralisation.

“It is very, very important to have a UTC headquarters in India because customers and suppliers want to know who people report to at the end of the day. Now they are all based here and we can say that UTC is totally committed to India,” says Purushotaman, who retired in January 2011. UTC won’t fill his position, further cementing efforts to decentralise.

“Our infrastructure divisions — Otis, Carrier and UTC Fire & Security — will lead the growth in India. We set up a simple strategy, grow revenue, grow talent, and grow sourcing,” Purushotaman says. “Our strategy is to enhance localisation in India as much as possible. It’s different for each division. Commercial will go up to 70-80 percent eventually.”

Over the last year, under his watch, UTC relocated a slew of senior management to India, increased its domestic employee base by 10 percent, chalked out a path to increase local sourcing, executed deliverables including the Tata-Sikorsky S-92 helicopter cabin and built a strong acquisition pipeline.

In line with its strategy to roll out products that cater exclusively to the local market, Otis began manufacturing in Bangalore, the Gen2 Comfort elevator line that can handle electricity fluctuations better, and reduce overall energy consumption. Meanwhile, UTC Fire & Security opened a Hyderabad-based India Innovation & Engineering Center to meet growing demand for fire and security products in India’s infrastructure and energy industries. Carrier also launched an energy efficient air-conditioning line for the Indian market.

Additionally, the group launched a branding campaign with ads that linked subsidiaries to the parent organisation to optimise cross sales. “A lot of our customers are the same, for example, like the mega city project GIFT in Gujarat. We have to get involved upfront to spec and design the equipment, and manage the after-market service. UTC’s suite of companies can bring all this together,” Purushotaman says, adding that Irani will help create this cross-selling synergy.  

Jonathan Salem Baskin, a US-based brand strategist who has consulted for Apple, JP Morgan and Nissan, said offering an integrated versus a separate business approach, as in the past, represents a huge change in strategy.

“UTC has been busy putting operational programmes in place and finding synergies in cross-selling, cross account client satisfaction, and quality benefits in buying a suite of UTC products. It’s a very powerful argument and that’s the way it should happen,” Baskin says.

“GE’s branding is a lead generator. It’s a push rather than pull strategy. But who cares about branding strategies unless it operationally means something to customers? What matters is whether UTC will offer better financing deals and operational benefits that come with a unified brand,” he adds.

UTC’s Irani said the group has already begun to reap benefits from a recently unified brand.

“We’re focusing on our key customers and driving cross-selling synergies between our different commercial businesses,” says Irani. “We’ve won close to $100 million in business coming through the revenue synergies in 2010.”

In the aerospace segment, Pratt & Whitney is powering up to beat GE for commercial and military contracts. Pratt & Whitney and Sikorsky are sitting on a goldmine of opportunity to place commercial work in India and bank military offset credits. But it’s only the winner that gets to have the cake and eat it too.

“There’s no question that UTC is a little behind in India. But a lot of it comes down to key contract wins. The opportunities presented in winning the MMRCA (Indian Air Force medium multi-role combat aircraft) fighter contract is enormous,” says Richard Aboulafia, aerospace analyst at the Virginia, US-based Teal Group.
 
In the commercial aerospace segment, UTC is already gaining a step ahead of GE with Pratt & Whitney’s GTF (geared turbo fan) engine, launched last year. A major win, budget airline IndiGo has just placed an order for 300 GTF engines, which is one of the largest single orders received globally by an aerospace manufacturer.

Pratt claims the new product is 16 percent more fuel efficient than any engine in the market. That’s a huge selling point with airline companies struggling with rising fuel costs.

The Sikorsky S-92 helicopter cabin, also launched last year, is one of the biggest aerospace sub-contracts in India to date. Meanwhile the Indian Air Force signed an agreement to purchase 10 C-17 cargo jets powered by Pratt & Whitney engines, and plans have been on the drawing board to place additional orders.

All this is serious traction for a group that has been uber-cautious in capturing Indian market share as a unified conglomerate. Learning what not to do from the first mover could be a smart strategy. Some would say that’s one heck
of a move.  


Tapping the Source

by Cuckoo Paul

Four years ago, United Technologies (UTC) set up a sourcing and manufacturing office in Bangalore, which the company uses to build an ecosystem of Indian companies as suppliers to its divisions. The company now has 16 suppliers in India, and plans to formalise relationships with some of them through joint ventures. Most of these are suppliers or fabricators of castings, forgings, composite materials and electronics. The company hopes to eventually move up the value chain so the raw materials that are currently shipped from North America will be sourced in India, says Dave Galuska, senior vice-president, module center and operations at Pratt & Whitney (P&W).

“Aerospace OEMs [original equipment manufacturers] working in India are typically faced with two extremes of manufacturing competence,” says Vivek Saxena, country manager, P&W. At one end are the defence public sector units like HAL, BEL and others that have been doing high-end work and at the other are private companies, that may have a good manufacturing base but do not have aerospace capabilities. Sourcing for the aviation business is different from auto-components because it needs a much higher level of control on the material, the processes and even the raw material used for the parts. Firms have to be certified to guarantee that the quality of their production meets standards.

UTC has been sourcing from about 16 companies in India, and is looking to broaden the base. Some of these, like Hyderabad-based Infotech Enterprises, began small but have now grown to make complex components and also created patents in aerospace. Infotech now has about 2,000 engineers working in the aerospace division, about half of which are involved in UTC work.

Dave Galuska, has set up sourcing offices for UTC in China, Poland and India. The company operates through various levels of involvement with local suppliers, he says. It is either through contracts, joint ventures or wholly owned subsidiaries. In India, one of the most high-profile tie-ups is a joint venture with Tata Advanced Systems for making helicopter cabins for the Sikorsky S-92 helicopter. The company has another similar venture with the Tatas for components too. “In terms of cost of sourcing, India is very competitive,” says Galuska. Costs are about half that of North America and 30 percent lower than China, Poland and Turkey, he says. However the infrastructure in the other countries is better, he says.