Services drive 3M in India

How does a $30 billion (Rs 1.63 lakh crore) materials science multinational, which gave the world 55,000 innovations, become a $1 billion company in India by 2017? It washes cars, and services them. For the first time globally, 3M, the Minnesota-headquartered maker of Scotch tape and Post-it, has kicked off a services business. It is opening ritzy, branded service centres with areas between 1,500 sq. ft. and 2,000 sq. ft. to wash and polish, do minor tinkering and painting, apply underbody anti-corrosion paint, and provide high-end car detailing. R. Ravi, a franchisee of 3M India’s flagship ‘Car Care’ centre in Jayanagar, Bangalore, calls it “the business of beauty parlours for cars”.

3M arrived in 1988 with tapes and copper connectivity solutions for the telecom industry; India was then in the throes of laying a fixedline network. Birla 3M, as it was known then because of its partnership with the Ashok Birla Group (each 40% owner), built its business as a trading company importing in bulk from its parent. In 2002, after the Birlas sold out, 3M Corporation ended up owning 76% of its India subsidiary. Last month, 3M reduced its stake by 1%, mostly to comply with the Securities and Exchange Board of India’s guidelines. The stock immediately fell by about 4% to around Rs 3,600. (The subsidiary’s stock commands a premium due to its multinational parentage.)

That’s also when pressure mounted on 3M’s only listed subsidiary outside the U.S. to do more. This, since 3M India contributes a meagre 1% to global revenues, and even less by profit. In 2012, it had an operating profit of around Rs 64 crore, on a turnover of Rs 1,410 crore. Globally, over 70% of 3M’s revenues—from sale of products—come from outside the U.S. Japan contributes the highest, followed by China.

According to Ajay Nanavati, managing director and 3M India’s first employee, the legendary products company’s shift into services was driven by the structure of the Indian economy. “Unlike China, where manufacturing drives growth, 60% of India’s GDP is driven by services. It was our conscious decision to follow the money.” He adds the big push came with the 2010 Commonwealth Games where 3M India executed parts of the project such as installing signage and reflectors, and applying films, on a turnkey basis. Today it provides services to L&T, GMR, and GVK for highway and airport projects: graphics, glass decorations, and surface finishes at New Delhi, Mumbai and Hyderabad airports; and road signage for the Yamuna Expressway in Uttar Pradesh, and 500 km of a state highway in Gujarat. It even takes up rebranding of bank branches.

Recently, it installed aluminium conductor composite reinforced cables for Tata Power which doubled transmission without dismantling towers in a densely populated Mumbai locality. For a company that started off in India selling telecommunications components, the transition to services has been gradual. But as it completes a quarter of a century in India this month, what it sees is a changed culture at a hardcore scientific innovations lab forced by one of the world’s fastest growth engines.

A chemical engineer, Nanavati also has a services background. He headed a team to execute a power project in Austin, Texas, under W. James McNerney, the first CEO and chairman (between 2001 and 2005) of 3M who had not worked with the multinational before. “I worked with McNerney for five years to change the culture at 3M,” says Nanavati, referring to the acceptance of services as a business model at 3M Corporation.

McNerney came from General Electric and brought with him its legacy of combining product development and servicing. He now heads Boeing Corporation.

In 2008, Nanavati set a target for 3M India to become a $1 billion subsidiary by 2015. (It’s since been pushed to 2017, thanks to the financial meltdown and a depreciating rupee.) An ‘In India for India’ strategy was rolled out, which identified infrastructure and automotive, health care, and retail as key drivers. Only, to grow, 3M would need to focus on servicing retail customers more than institutional ones. Hence, the push into automobile servicing.

Subodh Jindal, executive director, transportation business, 3M India, says that back in 2002 they had already begun experimenting working with automobile dealers to understand the servicing business. It was now time to accelerate. In the last year and a half, 3M India has opened 22 Car Care shops, mostly in South and West India, as pilot projects. The goal is to have 150 to 200 shops across the country in the next three to five years. Nanavati wants servicing to cumulatively contribute 15% to revenue in the next five years, from 2% currently.

Two years ago, when the car care business was being rolled out, 3M recruited two persons—one who specialised in retail, and the other in franchise model. Today, it has nine. 3M has also created a 106-page standard operating manual (version IV till now) that incorporates the best practices of retail giants such as Shoppers Stop, and is providing extensive training to service personnel.

After six months of deliberation over a 30-page business plan drafted by Jindal and colleague Ninad Gadgil, division manager, automotive aftermarket, 3M India, the car care business got the nod from Minnesota in 2010. “We were asked three questions: ‘Why would you want to do it?’ ‘Is there any risk to 3M?’ ‘Is there money in it?’” says Nanavati. The questions lay bare 3M India’s thinking around automobile servicing. Nanavati answers the first, saying more and more people now want their cars to look expensive, so there is the need for a 3M Car Care centre which would restore a vehicle’s showroom gloss and finish. That also means that the answer to question three is a yes.

The answer to the second is a bit more nuanced and underscores some of the sensitivities that 3M India is trying to manage. Even though it may have the products for mechanical servicing such as engine decarbonisers and oil filters, it doesn’t yet want to take that business entirely away from car companies, given that they are 3M’s clients globally. So it will go slow in the segment. “3M India, however, will explore partnering petrol pump service centres or local garages as a bolt-on to the car care business,” says Nanavati.

Bijoy C. Roy, chief of adventure initiatives, Mahindra & Mahindra, and former editor of BS Motoring, puts it in a different context. “3M Car Care is a smart move. It realises that India lacks the DIY [do-it-yourself] community of the U.S., which uses most of its products.” He adds that the only way 3M could engage with customers here was by servicing their cars. As Jindal says, “Here people love to get their work done by others”.

Industry experts think what 3M is doing will be the trend going forward. “Independent servicing is the future. It may not take longer than six to eight years for India to become like the U.S. where servicing gets fragmented into specialised categories. That way 3M is on the right path,” says former Maruti Suzuki MD Jagdish Khattar, who runs Carnation, a multibrand automobile servicing chain. He adds that more than 60% out-of-warranty customers move to various independent workshops. He says that even between services during warranty, which is typically a gap of three to six months, the dust and dirt on Indian roads force cars to go for a 3M-kind of service. Gadgil points to a Rs 300 crore automotive servicing market that is growing at 15% annually.

S. Muralidharan, regional president, automotive aftermarket, Bosch India, agrees with Khattar. “The Indian car park has vastly grown in the last 10 years.” Bosch India itself has set up 500 servicing outlets in the past eight years, and is now mulling what it calls ‘Express Bike Servicing’. Bosch globally has over 10,000 automobile service centres.

Nanavati and Jindal, however, say that 3M’s car care would be “more like Sony experiential centres” that will launch the latest technologies from its stable, and provide high-end services, such as paint protection films and expensive polishes. In other words, 3M will be creating a ready market for its innovative products. The more mass-market products and services would still be available with automobile dealers. “The car care business is more like our brand-building and marketing exercise,” says Jindal. The next in line are 3M service centres for two-wheelers. At 3M, it is perhaps history in the making again, since it moved away from mining at Minnesota.