‘Panasonic India will spruce up refrigerator offerings’

Manish Sharma, President and CEO of Panasonic India & South Asia, is the first Indian to be elevated as an executive officer of the parent company, Panasonic Corporation. In an interview with BusinessLine , Sharma shares the company’s vision for the country.

How does Panasonic India propose to double its sales in the next three years?

The first is to set up a refrigerator factory. We are missing out that space today because we are importing our refrigerators from our overseas factory. This makes this opportunity less attractive as the cost of products is higher because of the duties and supply chain inefficiencies. So, once the factory is operational, we’ll have a wider range of products and a better supply chain, and this will start happening from 2018 onwards.

Secondly, we are looking at customising the product planning. We are opening an overseas, off-shore R&D development centre at Tata Elxsi in Bengaluru. The fundamental purpose of this R&D will be to make customised solutions for appliance products, and also to look at next-generation technology such as connected appliances and IoT (Internet of Things).

The third one would be in the space of mobility — and this would be premature for me to share but, similar capability creation is going to happen in the area of application creation also. I’ll give you an example: recently, we announced a new artificial intelligence [mechanism] called ARBO; it is more of a virtual assistant within a smartphone which tries to understand your usage habits and, using machine learning technology, notifies us accordingly. Thus, the third enabler aims at building an ecosystem of applications which will create a differentiation of the mobile devices for us.

Then, we aim at growing exponentially in the B2B space and have three focus areas: energy storage, security and surveillance, and housing products such as PBX, video door phones and the other devices in the domain of anchor-electricity in India – wiring, switches and electrical devices.

What specific role will you play as an executive officer of Panasonic Corp

My elevation as an executive officer and Vice-President of the appliance company is a great honour for me but also comes with bigger responsibilities. Such an honour has been bestowed on only two overseas people, my counterpart in China being the other. Our strategy is to have an inclusion of regional participation in the growth and in the operations. Therefore, we are trying to create a matrix where participation of people such as me, who are from regions that have an inclusive role in strategy on a larger level. Our role in the strategy building process will involve a lot of dialogue, a lot of review participations and a lot of visits to Japan to discuss the long-term strategy and then align the regional execution and strategy with the global.

What is the typical level of investment that you have annually?

Capex goes into assets, for example, into factories. So, this year, we are looking at ₹115 crore going into the refrigerator factory.

But, on advertising and marketing, we invest approximately ₹420-₹430 crore every year. Advertising spend, which is 2.5 per cent of our revenues, is close to ₹140 crore and the remaining goes into the below-the-line activities, which consists of promotions across shops: in-shop branding, providing consumer finance, etc, because that is a very big enabler in today’s environment.

What are the biggest barriers in the industry?

Barriers are in the form of product line-up. In the case of TVs, we now have a robust line-up, especially over the last two years. We manufacture 95-97% of our TVs in India. Similar is the case of ACs.

Therefore here, we are multiplying our market share by approximately 1.5 -2 % every year which is a significant jump. [In] TVs and ACs, we don’t see a problem, except that we have to reach out to customers, especially in the tier-II towns. Therefore, we are emphasising on the distribution segment. In the case of home appliances, the category needs to be revamped.

Once the fridge factory is up, we will get more thrust in terms of opening up into other markets.

Is it because you are a late entrant?

Yes; if you see our revenue in 2009 was ₹300 crore. We entered India in 2008 and virtually started our operations in 2009 and invested in brand ambassadors, IPL etc. Since then, our revenue has grown 8-9 times.

How has the market dynamics evolved over the years?

The market dynamics have changed due to multiple factors such as economies of scale, the demand-supply gap...the Koreans have changed it.

But before [delving into] that let me give you a sense on margins. Typically, a retailer makes 5-10 per cent on most durables, the distributor makes 6 per cent (3 per cent is his expenses and 2-3 per cent is his margin); and that’s how he plays on the scale.

In the case of distributors, the expenses are higher as the distribution costs are 16 per cent; in the case of larger dealers, it’s 20-21 per cent, depending on the operating channels plus ambiance costs.

Other huge retailers have a channel cost averaging 20-22 per cent to company, and given the nature of competition and discounts of 5-10 per cent and 2-3 per cent at the distribution level. Big dealers make a margin of 10-12 per cent, depending on the nature of the overheads.

A credit of about 30-45 days is given to the sub-dealers by the distributors, which includes warehousing plus people cost, which is close to 3 per cent of the revenue. If you are able to maintain a lean inventory, you will be able to have margins.

Today, the ultimate sale is pushed to the consumer, demand is created and then the inventory; this change has happened in the last six years.

Panasonic is not considered aggressive in the mobile phone space

We entered the market three-four years ago and last year, we sold 2 million devices, which is nearly 2 per cent of market share.

But, the market has faced a lot of challenges — the rupee depreciation and the entry of Chinese players, to name a few. But we are running autonomous operations here, with India as the headquarters. The HQ [in Japan] initially supported us with product development, quality, innovation and IPR support, but today, it is entirely done in India — working capital and everything.

In the last three years, we have been exporting to Sri Lanka, Saudi Arabia and South Africa, clocking 50,000-70,000 units. We manufacture along with our partners – Dixon Technologies. With market stability, we are building an ecosystem on the latest Android [version].

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