Interview with Viswanath S, Director, TE Connectivity India

Company Description: Globally TE is a US $13 billion company, offering reliable, high performance, cost effective and broadest range of connectivity solution across multiple industry segments with over 500,000 live products in its portfolio. The company’s biggest differentiator is the synergy and complementary products through acquisition of great brands like Deutsch (harsh environment connectivity), ADC, and XOL Technologies. TE also has a rich legacy (AMP, Raychem) which adds to its credentials. The company produces approximately 8000 different electrical components for the automotive industry in India. The company is leading the innovation in hybrid/electric mobility space.

TE Connectivity has had a foothold in India for nearly 20 years. How has been the growth story of the company in the country?

In the initial years, TE Connectivity’s focus was on telecomm, defense and also in the power sector. Until the year 1995-96, we had a tough time in all the three fields. There were sanctions so nothing much happened. The armed forces were predominantly using Russian technologies which we being an American company could not cater to and achieved limited success. Telecomm was also a slow boat because of fixed line telephones, until mobile technology flooded the market. We, as a brand, shifted our focus towards the automotive sector and networking. We started with the enterprise networks, which involves campus networks. With this start in the networks business our attention came back to telecomm. As a whole it has been a mixed bag, we have grown multifold and we are very optimistic about our future growth in this country with the numerous technological advancements happening around.

Can you shed some light on the company’s growth in the automotive segment specifically?

To start with, we were in the tier 1 harness business. We used to do harness for Tata Motors, Ashok Leyland and Force One. We exit the business about 3 years back as that was not our global competence and also we were competing with customers. We paid attention to the component side other than harness business. Our strength lies in connectors, relays, sensors, fibre optics, and cable assemblies and that is where focus has been for the last three years with a growth of 30-40pc. The current year has been the toughest so far, as it has been for all the other players in the market. From next year, we want to be more cautious in our efforts. Year 2015 onwards we expect to be back on track with a healthy double digit growth. Globally, the automotive business contributes to about 40pc of our total business. In India, this contribution is close to 50pc.

How important is the Indian market for TE Connectivity?

The Indian market clearly stands very important for us. In terms of global revenue today it is at less than 10pc, but from a growth perspective it is one of the top 5 markets in the world. The Automotive segment adds up to about 35pc of the total turnover from TE Connectivity’s Indian operations. Segment wise division would put 70pc revenue from passenger vehicles, 25pc through commercial vehicles and 5pc by 2-wheelers and 3-wheelers. On the design side, we do a lot of work from India supporting operations around rest of the world.

What kind of different products do you offer in the automotive space?

TE Connectivity is the world’s largest passive electronic component manufacturer. We manufacture connectors which are used across a variety of applications wherever there is power and signal. We also have relays, sensors and cable assemblies. We make specialised cable assemblies for vehicles HVAC, engine, high temperature and other specialised applications. Our expertise lies in the intense cable setups, for example cable assembly for the airbag application which fires the airbag in case of an accident. We are also working on the high current and high voltage area as we have possessed a lot of experience in the AC and DC current. This technology is implemented in the hybrid and electric vehicles which are getting quite a lot of importance now. We work for nearly all of the OEMs like Volkswagen, General Motors and Ford.  Our foothold is very strong in Europe and we have a good market share with Audi, BMW and Volkswagen. They have very superior diesel technology and we have a strong association with them. Volkswagen happens to be one of the biggest OEM’s for us.

What different changes has that company observed in these 20 years?

We came in India for the local market but our approach shifted towards the exports because the local market needed some time to mature. We had to export a lot to our group companies and we invested on people, capability and technology. We mastered in our core manufacturing processes, which are moulding, stamping and assembly, in the last 15 years. With all that knowledge and capability now we are well posted and have started getting local projects. So our journey started with exports, which has now shifted focus towards the local business. Our exports now account for about 30-40pc, and the rest is domestic. This ratio might change based on the future. The exports will continue, but the percentage might go down.

Can you walk us through the three TE Connectivity plants located in Bangalore and Pune?

The two units in Pune are dedicated to the automotive sector. One is a connector manufacturing facility which deals with moulding, stamping and assembly whereas the second unit is concentrated on making cable assembly. The Bangalore facility is a cross business unit where we support all the different businesses of TE Connectivity. Apart from automotive, we have aerospace, industrial, consumer and networks are all supported from the Bangalore unit. Our engineering centre is also based in Bangalore. The historical reason for setting up in Pune was partially down to Tata Motor’s plant and the close proximity of Gujarat which is evolving as an automotive hub. Apart from that Pune is a central hub for businesses and works very well in terms of logistics as well.

What kind of localisation level do you currently possess? What parts are being imported and not being manufactured here locally?

Our current localisation level is about 40-45pc which we plan to bring up to 60pc. The components which we have to import are a bit more complicated to produce here and the demand volumes are very small. If the utilisation of a certain component is less than 50pc, then typically we do not manufacture it here and rather import it from the country where it is being made. Consider an example, Hyundai vehicles contain a lot of connectors which are imported from South Korea as they are designed and produced there. Hence, it makes more sense for us to import it from Korea.

The industry is growing at a very fast pace through technological advancements and the entry of newer brands from across the globe. What are the challenges faced by TE Connectivity?

One of the challenges is the Free Trade Agreement. When a vehicle gets imported directly from the parent nation, the components also start coming at almost zero duty. We are optimistic, for example, some of our customers are buying companies in Europe or North America, and with that they want to bring the production here in India, which in turn grows our business. Definitely we have to be leaner and meaner on the manufacturing front, because if we do not have the cost advantage then we get exposed to the ASEAN and the Far East companies bringing their products to India. That is the reality and we have to compete with them. That keeps us on the edge. And if there is no barrier, such as duty, then we ought to be really efficient to stay in the race.

Can you give us a sneak peek at the future investment plans that TE Connectivity is working upon?

We are already building a new plant in Bangalore near the airport in the industrial park spread across an area of 280,000 square feet with an investment of 600crores. The plant will go into full-time production in May-June of the year 2014. This campus will support all our businesses like aerospace defense, networks and consumer. Some part of the automotive business will be done here as well, but the major chunk stays entirely in Pune. Further we are expanding in Pune also. New machines are being bought in and hopefully a new building will be added by next year. Our investment in India is continuous.

Lastly, what is your vision for the company?

Primarily our goal is to grow at three times the GDP growth. But in some markets where the base is yet small we definitely want to grow faster and reach a more mature level. On the automotive segment we would say that the current environment is a little bumpy. We want to increase our current contribution of 35pc to the automotive sector to 45pc market share by 2015. We think we will have to pass the next 12 months to reach a more steady state. Even in the depressed market we continue to see growth and we are very excited with the new launches. There are challenges like the falling rupee and fuel prices going up, but the new launches keep the spirits high. There are issues in the short term but we are bullish at the long term and are committed to the Indian market.