IN­TER­VIEW/ Sir Roger Carr

“Do not need full own­er­ship if you have a good part­ner”

Business Today - - CONTENTS - Roger Carr

In the din of rapid-fire an­nounce­ments around de­fence tie-ups for man­u­fac­tur­ing in In­dia, the £17.8-bil­lion BAE Sys­tems has made two very sig­nif­i­cant break­throughs that have the po­ten­tial for multi-year or­ders from In­dia’s de­fence forces. Lately, it bagged the $542-mil­lion or­der to sup­ply 145 M777 ul­tra-light­weight how­itzers to the In­dian Army. Fully-built gun de­liv­er­ies be­gin this June at two per month, while a BAE-Mahin­dra JV read­ies to as­sem­ble and pro­duce the ar­tillery guns in-house. Ear­lier, it sup­plied 123 Hawk Mk 132 air­craft to In­dia, 99 of which were built in In­dia by Hin­dus­tan Aero­nau­tics un­der li­cence from BAE. In Fe­bru­ary this year, HAL and BAE un­veiled the ‘Ad­vanced Hawk’ at the Aero In­dia Show in Bengaluru, which could be of in­ter­est to In­dia and other na­tions in the re­gion. With that, BAE is among the rare in­ter­na­tional or­gan­i­sa­tions with firm or­ders for man­u­fac­tur­ing in In­dia. Busi­ness To­day’s Ra­jeev Dubey met with BAE Sys­tems’ Chair­man Sir Roger Carr dur­ing his In­dia visit. Ex­cerpts:

De­fence is a global in­dus­try where you make in one place and sell around the world. How will eco­nomic na­tion­al­ism af­fect it? There is no doubt that coun­tries now recog­nise they have a re­quire­ment to build within the coun­try, driven by the need to cre­ate value in the do­mes­tic econ­omy. What we are see­ing in In­dia is typ­i­cal of other parts of the world. It is true in Saudi Ara­bia and Aus­tralia where in­dige­nous man­u­fac­tur­ing is be­com­ing the or­der of the day. That’s ab­so­lutely fine, be­cause his­tory is built on hav­ing not one point of man­u­fac­ture with an ex­port ca­pa­bil­ity, but hav­ing dis­trib­uted man­u­fac­tur­ing glob­ally. Whether it’s the US, Saudi, Aus­tralia or In­dia, it is about part­ner­ships. So, the way the world is go­ing very much aligns with the way we have built our busi­ness over the years. Many governments seek whole­sale tech­nol­ogy trans­fer. How com­fort­able are you do­ing that? We do it here with Hin­dus­tan Aero­nau­tics Ltd ( HAL) – the Hawk air­craft is built here. The de­vel­op­ment of the prod­uct hap­pens here, al­though not ex­clu­sively. So we have a track record of work­ing with peo­ple, and not sim­ply see­ing other coun­tries as as­sem­blers but as true man­u­fac­tur­ing part­ners where tech­nol­ogy – pro­vided the skills are there – can be trans­ferred and de­vel­oped. It’s some­thing we are com­fort­able with, pro­vided we have the right part­ners. We saw the Ad­vanced Hawk tech demon­stra­tor. What is the future of the Hawk pro­gramme? The prod­uct that you have seen is an evolved Hawk. The dif­fer­ent wing con­fig­u­ra­tion gives it high lift ca­pa­bil­ity and its abil­ity to carry a wider ar­ray of ar­ma­ments of­fers more com­bat ca­pa­bil­ity. The cock­pit has a very clever elec­tronic vis­ual dis­play which makes it ver­sa­tile. It’s a piece of very ef­fec­tive and fairly-priced ma­chin­ery, now made in this coun­try. There are parts of the world that, we think, could be users of this prod­uct. And there is work to do here in In­dia to trans­late the ap­petite into real or­ders that turn into pro­duc­tion op­por­tu­ni­ties for HAL. Will it be made in other parts of the world, too? It will be made here. You have to be in mar­kets where vol­umes will war­rant pro­duc­tion ca­pa­bil­ity. What we have here is a pro­duc­tion ca­pa­bil­ity that can take more vol­ume; the more the vol­ume, the lower the unit pric­ing. That will make it more com­pet­i­tive in­ter­na­tion­ally. How do you per­ceive the changes in the gov­ern­ment’s de­fence pro­cure­ment poli­cies? We are pos­i­tive about it. It’s clear that Prime Min­is­ter Modi has a very ma­te­rial im­pact on the way this seg­ment of the mar­ket will op­er­ate. The move to­wards shared own­er­ship, al­lowance for pri­vate man­u­fac­tur­ers to be de­fence sup­pli­ers, the en­cour­age­ment to cre­ate part­ner­ships, and the very real en­gaged na­ture of se­nior politi­cians gives us con­fi­dence that this is not just a small ad­just­ment but a fun­da­men­tal shift in think­ing. Hope­fully, the mo­men­tum will con­tinue to boost job op­por­tu­ni­ties and wealth-cre­at­ing op­por­tu­ni­ties for both In­dia and peo­ple like us as part­ners in In­dia. Does 100 per cent FDI in­ter­est you or would you rather still have a part­ner? The op­por­tu­nity to have part­ners in this coun­try, who are of very high qual­ity, have real ap­petite for be­ing a part­ner, and who can bring skills, ca­pa­bil­ity and lo­cal knowl­edge to the part­ner­ship is very ap­peal­ing. And we have met peo­ple of ex­cel­lent qual­ity who we would be de­lighted to work with in part­ner­ship se­ri­ously. So you do not need full own­er­ship if you have a good part­ner; it can be very ef­fec­tive. All de­fence man­u­fac­tur­ing na­tions aim to be net ex­porters. How long be­fore In­dia can as­pire to be one? I think you can as­pire to that any­time. In In­dia, there are a num­ber of pri­vate com­pa­nies who have the ca­pa­bil­ity, in­ter­est, ap­petite and the skills to be real part­ners in build­ing com­pli­cated prod­ucts. There is a grow­ing list of smaller com­pa­nies which is im­por­tant to cre­ate a broader sup­ply chain in In­dia. The big com­pa­nies are get­ting well-po­si­tioned for that and these are the com­pa­nies we are form­ing part­ner­ships with. We then need or­ders to ful­fil the am­bi­tions of a coun­try. So, this is a long process…a decade, two decades? It de­pends. If enough or­ders come in, so that in­vest­ment is made, ca­pa­bil­i­ties in­crease, com­pet­i­tive­ness im­proves and the cost base is low­ered be­cause of the vol­ume, ex­port op­por­tu­ni­ties fol­low. How much can you crunch the process of mak­ing real-


time, cutting-edge prod­ucts if you have a part­ner? Based on my un­der­stand­ing and ex­po­sure to the com­pa­nies that we met as part­ners, we are com­bin­ing huge tal­ent, ca­pa­ble peo­ple, those who un­der­stand the in­vest­ment prin­ci­ples and re­turn on in­vest­ment, who have de­vel­oped very ef­fec­tive in­ter­na­tional busi­nesses here at home. It’s some­thing we can do over time; this isn’t months…this is years of work. The gov­ern­ment is likely to bring in the key strate­gic part­ners ini­tia­tive. How do you see this? How of­ten does this hap­pen in other parts of the world? The prin­ci­ple of the key strate­gic part­ner­ship ini­tia­tive is to sug­gest some ex­cel­lent com­pa­nies to do busi­ness with. That is not unique to In­dia. What the gov­ern­ment here is do­ing is break­ing with the past...chang­ing the way the coun­try works. I think that’s quite a prac­ti­cal and sen­si­ble way for­ward. It’s then for the part­ners to as­sess them­selves if they are good part­ners, and for the part­ner­ships to de­liver goods. How’s been your ex­pe­ri­ence with the gun or­der? It took a long time… Yes (laughs). It took a long time be­cause that or­der was ini­ti­ated and de­vel­oped in a dif­fer­ent age and cer­tainly in a dif­fer­ent po­lit­i­cal cli­mate. This is an im­por­tant prod­uct that is ‘Make in In­dia’, and it will be made in In­dia quite rapidly. The ini­tial two or three will come al­ready as­sem­bled and made, but very quickly the pro­duc­tion process will start…the Mahin­dras are a very able part­ner. It will be ap­peal­ing to the mil­i­tary. The gov­ern­ment has been push­ing the ease of do­ing busi­ness. In your ex­pe­ri­ence, how dif­fer­ent is it? Well, it’s get­ting bet­ter. There is a mind­set change. And it is very vis­i­ble in the way own­er­ship can be shared, the way that some of the pa­per­work is eased, the re­spon­sive­ness that one has as a busi­ness op­er­a­tor here to gov­ern­ment par­ties. More change will come through. We’ve made some small sug­ges­tions such as sim­pli­fy­ing the terms and con­di­tions. At the mo­ment, the off­set ca­pa­bil­ity is specif­i­cally lim­ited to the com­pany that sold the par­tic­u­lar prod­uct. If that com­pany hap­pens to be part of a much big­ger group, then there’s an op­por­tu­nity for all other parts of the group to con­trib­ute to the off­set which in it­self will help the SME area. We’ve sug­gested re­mov­ing the tra­di­tional re­stric­tion of a sin­gle com­pany fo­cus and per­mit­ting the whole group to de­liver the off­set ca­pa­bil­ity. One rea­son for the suc­cess of In­dia’s do­mes­tic man­u­fac­tur­ers is fru­gal man­u­fac­tur­ing pro­cesses that Mahin­dra, Tata, Maruti and oth­ers have. Are there learn­ings for BAE? These com­pa­nies do some re­mark­able things all over the world. We may help them learn how to do a par­tic­u­lar de­fence project, but part of this part­ner­ship ben­e­fit is that we are hop­ing to lever­age and learn from their method­ol­ogy, ca­pa­bil­ity and tech­ni­cal edge. If you go to the Land Rover (fac­tory) in the UK, you will see man­u­fac­tur­ing and en­gi­neer­ing at its finest…put in by Tata, and we have ex­changes with them. It will be no dif­fer­ent here. Any­thing you are ex­pect­ing out of the guns or­der to be ex­ported from this plant? This is a do­mes­tic or­der which may be re­peated for the do­mes­tic mar­ket. And that’s what it is set up for. It doesn’t mean that it could never be any­thing else. You have guns, there’s Hawk…what else for BAE in In­dia? There’s a strong, cost-ef­fec­tive ship-build­ing ca­pa­bil­ity in this coun­try. In an in­creas­ingly de­mand­ing world of naval ar­chi­tec­ture, we may be able to help in de­sign and en­gi­neer­ing from a tech­nol­ogy point of view. I don’t think we’ll be build­ing ships for In­dia, but we could add some­thing to the IP which is re­quired to build more so­phis­ti­cated ships. But this is all very much in the future. If we can cap­i­talise on the Hawk, ex­pand the or­der book, get the guns in and work­ing, it will make for a very strong foun­da­tion on which we can look at more op­por­tu­ni­ties. Do you plan to be­come a part of In­dia’s cy­ber ini­tia­tive? Yes, in­deed. We have an in­volve­ment there al­ready. It’s small, but we’ve made the point that we op­er­ate from a very strong mil­i­tary and se­cu­rity base in the UK, which spreads over the Five Eyes (global in­tel­li­gence al­liance) com­mu­nity, and we are ca­pa­ble of of­fer­ing great ca­pa­bil­ity to peo­ple who are ap­proved by our gov­ern­ment, who work with us in part­ner­ship. And we be­lieve we have op­por­tu­ni­ties here to do that over time.~

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