Daikin, the global leader in ACs, is betting on energy efficient technology and entrepreneurial dealers to succeed in India
There is a calming diligence about a Japanese factory floor. Employees, all in identical dull grey-blue uniforms, tend to their units meticulously over the roar of the giant machines that flank them. But in a corner—under an electronic scoreboard which signals how many compressors have been made vis-à-vis how many should have been made—workers, waiting for their shift to begin, gather around a colleague’s smartphone to watch the latest Bollywood video. This may be a hi-tech Japanese factory where employees have weekly Kaizen (self-improvement) meetings, but it’s in the heart of Rajasthan. It is the only manufacturing unit of the Indian operations of Daikin Global, the $17.6 billion AC manufacturer headquartered in Osaka, Japan.
“In 2009, it used to take us one month to build an industrial chiller. Now, we can produce it in one shift,” says a factory production manager. The manufacturing plant at Neemrana, Rajasthan, plays a key role in Daikin’s plan to become a market leader in India by 2015. When the company entered India in 2000, through a joint venture with Usha Shriram Enterprises, it had decided to target the premium space, ceding market share to Korean giant LG and established Indian players such as Blue Star and Voltas who operate in the mass segment. (In 2004, Daikin India bought out Usha Shriram’s stake in the JV.)
In 2006, Daikin Global laid down a blueprint to become a world leader in the AC space, a strategy that was adopted in all the countries where it had a presence. It further cemented its aggressive plan by buying American duct-AC specialist Goodman Global for $3.7 billion in August 2012.
In India, Daikin upped its game in 2009 when it stopped importing AC units from Thailand and launched a manufacturing base at Neemrana. In the five years that the plant has been operational, Daikin has become the second-biggest AC maker, after Voltas. From 34,000 ACs and revenues of Rs 440 crore in 2009-10, it has increased its output to 400,000 units. In 2013-14, it reported a turnover of Rs 2,200 crore. This success is the result of marrying cutting-edge Japanese technology with Daikin Global’s management practices among Indian experts who understand the AC market.
“My boardroom has more than 500 years of India experience combined with Japanese DNA,” says Kanwal Jeet Jawa, managing director of Daikin India. But he acknowledges that the company is still far behind the Rs 5,244 crore market leader, Voltas. Nipping at Daikin India’s heels is LG, which reported a Rs 2,000 crore turnover in 2013-14.
Daikin has a long way to go before it topples Voltas, and 54-year-old Jawa might just be the man to make it a reality. The company got in Jawa in 2010, a year after it decided to scale up its India operations. Kanwal Jeet Jawa began his career in 1980 as a service engineer. An AC industry veteran, he’s been with Voltas (twice), Blue Star, Carrier, Godrej and Uniflair. “In India, people do business with people. I started my career as a service engineer, so I know what service delight means,” he says.
He’s enthusiastic about Daikin’s future in India. At a meeting in the factory’s boardroom, with senior employees in attendance, general manager (manufacturing) Vikas Verma recaps the company’s India business. Suddenly Jawa interrupts his power-point presentation. “He was with Carrier, he was with Voltas, he was with LG,” he says, pointing to some of the employees with his index finger. “The best collected together. The chief of O General is our south zone head. Our north head was senior GM of Voltas. Our room air-conditioner head was with LG Bahrain.”
Jawa isn’t the only weapon the Japanese company has got. Daikin has poached talent from its competitors to help steer its India operations from niche to mass market. This strategy has filtered down to even the dealership level. Jawa convinced executives employed in rival AC companies to quit their jobs and become independent dealers working exclusively for Daikin’s products. His small army of entrepreneurs includes two former vice presidents from LG and Samsung who now run dealerships in Delhi and Gurgaon, a former Schneider sales director who operates out of Faridabad for Daikin, and a dealer in Gurgaon who was a director at Carrier.
According to Kunal Sheth, an analyst with advisory firm Prabhudas Lilladher, Daikin will find it tough to get the number one spot in the room AC market because of its price-premium trade off. He says that if Daikin lowers its prices, it may lose the aura of technological superiority.
(This story appears in the 08 August, 2014 issue of Forbes India. To visit our Archives, click here.)