India is an under-penetrated market for Harman, says CEO

Varun Agarwal | | Updated on: Jun 06, 2019

Dinesh Paliwal, Global CEO, Harman International | Photo Credit: William Taufic 2014

JBL was the company’s way to bring tech to India, says Dinesh C Paliwal

Harman, one of the world’s largest audio companies, set up its manufacturing base in India in 2014. Earlier this week, Harman added four new production lines to serve the Indian automotive sector.

But at $50 million, the facility is only a precursor to what Harman intends to invest in India. In a chat with BusinessLine , Harman President and CEO, Dinesh C Paliwal, talked about the need to create a supply chain ecosystem in India in order to invite large investments into manufacturing. He felt that India still lags behind China in terms of enabling a robust manufacturing ecosystem. Excerpts :

The government wants you to shift your manufacturing base to India from China as labour cost is lower here. Would you consider it?

Frankly, we’re not there yet. China continues to be the most important growth market for the automotive industry, with 23 million vehicles produced in China last year.

Cost in automotive is not just direct labour costs. Direct labour cost in India is absolutely most competitive. It’s actually better than Mexico, better than Hungary, definitely better than China. But direct labour cost in a highly automated plant is only a subset. Where the real cost comes in is the supply chain. To bring all the components to build a final product, we have to pay a tonne of duties and India is still a prohibitively high-duty structure country.

That’s the reason we cannot see ourselves or other companies shifting big manufacturing to India.

If you want Harman and others to make things here, components are needed. Since they are not in India,they will have to be imported. If you’re going to levy much duty, I will not get into large manufacturing.

You started manufacturing in 2014, the start of the first term of Modi government. How do you see things moving since then?

We opened our Pune plant in 2014. It was our first foray in bringing manufacturing in India and that has been very successful.

After decades of total disappointment, finally, we are seeing there’s a business-friendly voice coming from the Prime Minister’s Office. It was he who said, ‘Hey, Samsung, why don’t you set up the world’s largest mobile factory in Noida’. That means he's trying to set up a single-window process. We’re not there yet but we come from a huge red tape set-up and getting things done requires a lot of credit.

In Maharashtra, the Chief Minister has said he wants to hear directly about issues so he can ensure things get done. That’s not what I heard from Chief Ministers in India before.

Increasingly youngsters are opting to not buy cars. How will that impact the automotive industry and Harman?

All sorts of statistics indicate that car production will not only stagnate but decline. Is that a worry sign for us? No, because penetration of mobility experience inside the car is just 25-30 per cent. So, only 25 cars out of hundred rolling out of the production line have digital cockpit, telematics, audio-video sort of an experience.

So electronics and sensors and software content in a car, according to McKinsey, will increase by 2030, from an average of $700 per car today to $4,000.

When you joined Harman, what was the vision of founder Sydney Harman? Since the acquisition by Samsung, where do you see the company moving ?

A lot has changed since then. When I joined the company, it was all of about audio. We were an audio company and we were pushing audio into the car, which meant going from four speakers to eight to 22. We have evolved, we have bought many companies and we went strongly into the software space. We bought Symphony Teleca from and got amazing software. We bought a cloud company called Aha Radio in California.

If Sydney was alive today, he’d say wow! it’s a different company. Because we are. We are talking about data, virtualisation, AI, machine learning, cloud, shared mobility.

You have significant presence in India for car audio but is India equally important for your personal audio products?

We knew affordability in India was a big question. So, first we wanted to democratise our technology. JBL was our way to bring technology to India. So we brought in JBL signature sound but price points became significantly lower. The second thing we did to reach the masses in India was that, we bought out the third-party channel we used to go through, and went direct.

We are now going into rural areas, urban areas and we’re using Samsung’s point of sales; 350 flagship stores are carrying Harman headphones and Harman smart audio. 40 per cent of our sales was through online. Last year, nine JBL and six Harman Kardon stores opened in India.

Last year, we grew 100 per cent year on year in India. We expect India to grow for us 50 per cent in consumer audio space for the next five years. Overall, we are growing 40 per cent year on year in India. India is an under-penetrated market for Harman.

How does being part of the Samsung group benefit you in terms of tech access?

Samsung, according to Forbes and Fortune’s list last year, ranked number one R&D spender in the world, ahead of Amazon.

They have an incredible technology pipeline and many areas relevant to us. These include head up displays, the LIDAR, radars, cameras, sensors, the whole Android-based expertise.

So, Harman has incredible access to things that its competitors don’t have. This will help consumers have access to solutions faster. Not being a public company, I don’t have to spend my time defending my earnings every quarter. Right now, the Samsung and Harman board tell us that if we plan to do something in five years, can we do it in three? So pushing more into innovation and R&D without worrying about short-term financials helps us.

That’s why today we have $28 billion in order books for a company of our size, with less than $10-billion revenue.

Published on June 06, 2019
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