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Emotional integration was also critical towards integrating these newly acquired companies. You cannot go into a company and be seen as only emphasising technology and intellectual integration because while there are brands, there are also customers and employees.

Mr Ashwin Dani, Vice-Chairman and Managing Director, Asian Paints

In the second and concluding part of an interview with Business Line, the Asian Paints Vice-Chairman and Managing Director, Mr Ashwin Dani, walks us through the integration issues involved and the challenges associated with their acquisition-led overseas expansion strategy.

Excerpts from the interview:

Asian Paints has aggressively pursued acquisition opportunities. While this does give it a global footprint, it also poses the challenge of integrating acquired companies, both operationally and culturally, with itself. How has the experience been with regard to your recent acquisitions such as SCIB of Egypt and Berger International of Singapore?

Asian Paints' international operations strategy is a local-led manufacturing strategy and we have plants in each operating country. It is important for us to localise our products as per the consumer requirements in that country.

Essentially our efforts towards integrating Berger International and SCIB has been two fold; the first aspect was intellectual integration and the second was emotional integration.

On the intellectual front, soon after the acquisition of Berger International Limited, we initiated the process of systematically registering all intellectual property such as logos, trademarks, designs and so on.

The brand `Berger' was powerful and well recognised across the world and leveraging the value of the brand across geographies was the key aspect.

On most counts Asian Paints processes were far superior and we have the advantage of adopting the best practices of one company into another. This has happened across Berger units and the SCIB unit.

The other crucial area was technology. In order to succeed in international markets, Asian Paints instituted a new technology management structure. It is in the process of establishing regional technology centres for each region and lead technology centres for each product line.

We have created free flow of information across companies and that is when the benefits of integration will be seen.

Emotional integration was also critical towards integrating these newly acquired companies. You cannot go into a company and be seen as only emphasising technology and intellectual integration because while there are brands, there are also customers and employees.

Soon after the acquisition, we addressed the emotional issues; we reached out to people and made an effort to convince them that we are committed to growing the business, and servicing the customers. And their commitment was essential.

Another issue we had to tackle to operate in foreign markets is that we needed people who speak the local language and understand the culture.

We now provide a lot of expertise and have built a whole function in India, which provides only back office support. We have various councils of experts who go and share their expertise with the units. Supply chain is critical and is the biggest strength of Asian Paints.

We want to leverage our supply chain capabilities across our international subsidiaries, so that they can reap the benefits like Asian Paints. A lot of initiatives are being undertaken to improve operational efficiencies at the Berger units.

The improvement in gross margins in Berger International results for the first six months of this financial year reflects our efforts in this area.

Some of the units acquired by Asian Paints are in countries that have weak currencies. Coupled with an appreciating rupee, it could dent earnings from such units considerably. How is AP going about managing the inherent currency risk involved?

Asian Paints has outlined its vision of becoming a leader across emerging markets. Most countries that Asian Paints operates in are emerging economies of the world, where per capita paint consumption is low and potential for growth is high. Asian Paints understands the complexities of operating in these developing countries.

It is already the largest paint company in 10 countries and has been successful in the emerging markets. We understand that some developing countries have weak currencies due to various factors and we analysed these factors before entering the markets. We are well aware that we will not be able to avoid these currency risks but definitely undertake initiatives to manage them.

For example, in economies with weak currencies, interest cost is high. We are restructuring debt to bring down interest cost in our subsidiaries.

We have already restructured the debt for our Singapore-listed Berger International, which has resulted in significant savings in interest cost for the company.

When do you see the acquisitions contributing meaningfully to the bottomline and what is your expectation on the extent of this contribution?

Asian Paints invested around Rs 58 crore for acquiring a 50.1 per cent stake in the Singapore-listed Berger International Limited. This gave us access to 11 emerging economies.

There was no overlap of operating countries. It gave us access to Berger brands in over 70 countries. But Berger International reported a huge loss in 2001 of S$11 million. It was continuously eroding shareholder wealth. It is for this reason that international operations of Asian Paints do not contribute significantly to its bottom-line. When making the acquisition, we were confident of adding value to Berger International. Asian Paints has already begun various initiatives across Berger units especially in supply chain management, technology and marketing. This is being done to improve operational efficiencies of Berger International.

In the first six months of this financial year, Berger has reported profits, along with an improvement in operating margins.

In terms of sales, international operations will contribute around 20 per cent of Net Sales for the Asian Paints group. Berger International would contribute 70-75 per cent of revenues from international operations.

Now that Asian Paints has acquired a 9.2 per cent stake in ICI India, do you believe that you should be a frontrunner to acquire their domestic business should ICI Plc decide to relook at its Indian operations? Can we expect Asian Paints to raise its holdings through secondary market purchases and then make an open offer to gain control?

The cost of acquiring 9.2 per cent stake in ICI was Rs 77.09 crore, which was funded through internal accruals. Asian Paints does not intend to destabilise the current management of ICI.

At Rs 205 per share, Asian Paints has paid a premium of 17 per cent over the reserve price.

(Concluded)

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