In 2012, the board of Hitachi Ltd, a Japanese multinational company, met in India—its first such meeting outside Japan. India then accounted for 1% of Hitachi’s global sales, which was $117.87 billion. Its then-global president and director Hiroaki Nakanishi then set an ambitious target for the local unit—grow sales to $3 billion by 2015. Hitachi India is set for another review in two weeks and its managing director Kojin Nakakita indicated that the company may have achieved its target but it remains far from being profitable in India. To be sure, between 2012 and 2015, Hitachi’s global revenues have come down to $81.46 billion.
In an interview, Nakakita talks about his aim of growing the India business independent of its parent by 2020 by capitalizing on the opportunities that the National Democratic Alliance government has thrown up in areas such as water, sanitation, information technology and infrastructure. Edited excerpts:
What does your business look like in the somewhat changed environment in India?
Since I took over Indian business last April, there have been a lot of changes, and Hitachi headquarters in Japan has also undertaken a lot of changes in terms of approach towards global business.
My mission has been to have autonomy in management. We have to go self-reliant, not asking for any money from the headquarters… be independent. That’s the big issue I am trying to sort out through social innovations. Areas of interest include basic infrastructure, power, railway systems, urban solutions, smart cities, IT (information technology) solutions. That’s what it is. There’s three major divisions in infra—steel, water, and oil and gas. We are leader in steel, we are finding things a bit difficult (in oil and gas). Water is a key area.
The Japanese government is (also) working very hard with the Indian government. There’s support for the dedicated freight corridor. We have been working on this for the last seven years. It is taking long time, but it has made some progress recently. That’s a very big business here. And that’s the future.
Another is smart solutions for smart cities. That is something the government and us are working very closely. We need to have the smart policy framework in place. Otherwise, smart technologies cannot be utilized. If there is no basic infra, that’s not sustainable. People cannot afford to be in a nasty city.
Also, water is going to be a huge issue in India. I was in charge of the water business before I came here. I’ll be approaching a lot of water businesses. Another 10-20 years… I don’t know how long it may take. But, for sure, India will be dry in near future… because we are using a lot of resources from the ground.
We also have a lot of focus in the IT sector… (where) we are still working on a perfect pyramid of our operations. The population is huge in India, and internet population is about 15%, but that is more than the entire population of Japan. Internet penetration is going to increase. It may take a lot of time. But to take this Internet penetration to 50% would create a lot of opportunities for people to access education, healthcare, etc.
For the future, for the next three years to strive, the key factor is basic infrastructure, urban solution, IT solution. That’s where I am focusing on.
Is there a reason why you are not focusing on areas of business where you wouldn’t need to depend solely on governments?
Most foreign companies may have difficulties. But given that, both Japan and India governments share a great relationship and are trying to do something together to make things happen. Relying upon government-to-government relationships, it takes time. And it does not give me cash flow. Can I afford to wait for long before I get cash? To depend upon government projects, I have to rely upon the pace, be it service, or products. So, I want to revisit all our businesses. It was all linked to government relationships and has been a backbone so far.
Does Hitachi have any water business here in India?
Not yet. We are working on the CSR (corporate social responsibility) activities. We have 30 group companies now and we are establishing a trust/foundation for CSR. Together, we can do more than just CSR. This can be education, something to do with supporting the society… clean water… (but) the policy has to be there.
One of your main objectives is to stop taking money from the parent. Financially, where does Hitachi stand now and by when would you be able to attain the objective?
That’s a huge task. In 2020, there’s the Tokyo Olympics. I made myself a commitment that by 2020, we’ll go completely independent. Of course, we’ll have to survive, smell the money and make money. But, where? That’s a question I am still asking myself. Where can I smell the money, where can I drive the profit. I cannot miss the diverse young population in India. And, this will grow. Unless, of course, India takes the one-child policy like China did.
What was Hitachi’s turnover last year?
We’ll announce soon, in a couple of weeks. In 2012, we held the first ever board meeting outside Japan. That was in India. Our chairman announced that time, Hitachi’s revenue in India is about 1% of Hitachi global. That’s not good. The target set was $3 billion by 2015.
Are you profitable in India?
In some areas, we do (make profit), some areas we do not. One thing that I find very difficult is that the raw material here is very expensive. That’s very important for Make in India. There’s no scrap available here. It is difficult to make money here. That’s an area the Modi government needs to address to make Make in India a success. Of course, we have a global network and supply chain. We are looking at how to maximize, how to give a better synergy. That’s one of the hurdles we may have that we need to address.
Do you think becoming profitable by 2020 will be a reasonable target?
I don’t see that yet. Yes, I have very high hope. As a manufacturer, people want to expect high growth at double digits. But, that’s tough. Making money in manufacturing is difficult.
Which of the areas will attract maximum investments in India?
We are looking at water, infrastructure, water management systems, we have lot of solutions in recycling, etc… Water is very key. Sustainable water is one of the key areas. We are also looking at opening an engineering centre in India. Not so much interested in making hardware here… but on the software solutions side, system integration etc… We may look for a partner or go on our own.
We invested $700 million between 2012 and 2015. Of course I want more. Future investments, we are yet to take a call. It is time to focus. And, we need partners. The next three years is the time to focus on a few areas. We’ll be announcing soon.
For Hitachi, which are the businesses that are taking the lead?
One of the leading things is Tata Hitachi. That’s doing very good. They have come up with some great designs just for India. They are doing great in terms of Make in India. I think, they are doing exactly what the Modi government wanted to do.
IT solutions, payment solutions, Big Data analysis, and now we are taking about smart city solutions. This is the part where we can harness all our brains.
We have noticed a renewed focus on consumer appliances businesses. Why?
In home appliances, you need a proper channel for distribution. We are positioned high-end. But how can it be so much different? In order to differentiate, it took us a long time. But, now, we have developed the network for selling and service.
Yes, there would be more products, such as washing machines and air purifier.
Do you see yourself tapping the mass segment?
We have products. Well, competing with Chinese and Koreans is not easy. Cost-cutting is possible once we go 100% local. And, it takes time. We have a lot of Japanese people working here. This involves a lot of cost. If we, like Koreans, go for 100% Indian people, cost would obviously come down.