ONE FOR THE ROAD

How Japanese partnerships and Indian whiskey spawned a $9 billion automotive giant

Quartz india
Quartz india

Before Vivek Chaand Sehgal made a name for himself in the business of building car components and the craft of forging lucrative partnerships, he was toying with the idea of manufacturing plastic drinking straws.

It was the 1970s, a messy time of wax-paper straws that had a tendency to disintegrate. A young Sehgal reckoned he had the right product at the right time. Eventually, he decided otherwise and instead entered wire-making. There was some prodding from his father, a mining engineer with the government, who felt that wires and cables would fare better than straws.

But even in those early days, Sehgal’s ventures were all about strong family ties. His first business partner, for instance, was his mother. “Because my father was in the government, my mother and I started the company,” Sehgal, 61, said in an interview in his expansive Greater Noida office. There was also some funding for the business that came from his maternal grandfather.

Somewhat suitably, in 1975, the enterprise was christened Motherson.

In the over four decades since, Sehgal has taken the small wire company based in New Delhi and turned it into a giant automotive component maker with annual revenue of around $9 billion. The Samvardhana Motherson Group, as it’s now known, operates more than 230 facilities across 33 countries, with a workforce of over 100,000 people.

Motherson-s-global-footprint_mapbuilder

It’s a remarkable story of growth and gumption woven around Seghal’s unwavering focus on the automotive business, and his talent for sustaining partnerships with some of the world’s largest carmakers.

From an initial focus on car and motorcycle companies in India, Motherson has, via 19 acquisitions and 26 joint ventures (JVs), expanded to become one of the largest manufacturers of wiring harnesses, rear view mirrors, dashboard modules, door trims, and bumpers in the global passenger car market.

The group’s plans for future growth are even more audacious. By 2020, Sehgal hopes to nearly triple the company’s revenues to $26 billion. “The 2020 target is my signature target,” said Sehgal, who currently serves as the chairman of the group. “It gives me clear direction to take the group where I want to.”

After that, Motherson’s leadership will pass from father to son, and it’ll be up to 35-year-old vice-chairman Laksh Vaaman Sehgal to chart out the group’s trajectory at a time of extraordinary disruption in the automotive industry.

Whiskey and wire

In the early 1980s, as Suzuki launched its collaboration with Maruti Udyog to enter India, Motherson was still a struggling wire and cable maker. “We had a horrible time from ’77 till ’82,” Sehgal said, “Nobody really wanted so much of quality.” The only concern was price.

Then, Maruti Suzuki arrived on the scene, scouting for a local company that could supply wiring harnesses, a complex set of wires that connect various components of a vehicle, for its upcoming car, the iconic Maruti 800. Keen on getting on board, Sehgal turned up at their office looking to find a drawing of the wiring harnesses Maruti wanted. When he asked around, a Sikh gentleman at the company handed him a tee connector (a device used to connect three cables) with an instruction to replicate it in quick time. Otherwise, there would be no drawing and, as a consequence, no deal.

So, Sehgal promptly went off to a machinist by the name of Avatar Singh. Somewhat reluctantly, Singh agreed to replicate the connector, but there were conditions attached. “First, you go and get three quarts of whiskey. And as long as you’re sitting with me and we’re drinking, I’ll make the tool,” Sehgal remembered Singh telling him. “And if you don’t, I’ll close the whole thing down.”

The two began at 9.30pm and finished past 1am. “He was amazing,” Sehgal said.

The next afternoon, Sehgal showed up at the Maruti office with two dozen copies of the connector. The Sikh gentleman was floored. Motherson had just hit big time.

East to west

Within days, Sehgal was in Japan talking to Tokai Electric, an expert in the automotive wiring harness business, for a collaboration. In 1983, Motherson signed a technical agreement with Tokai (now Sumitomo Wiring Systems), which developed into a JV three years later: Motherson Sumi Systems Limited (MSSL). Listed on the Indian bourses in 1993, MSSL remains the group’s flagship company.

As a wave of Japanese automotive companies—bike-makers Honda and Yamaha among them—entered India through the 1980s, Sehgal found himself in the right place at the right time, picking up the right manufacturing skills from the right partners. “For me, if they (the Japanese) weren’t there, probably I wouldn’t have made it,” he admitted.

Wiring harness facility
A Motherson wiring harness facility. (Motherson)

Soon enough, Motherson was looking at the other end of the world. At an Auto Expo in India in the early 1990s, the team went up to Mercedes-Benz with a proposal, only to be swiftly shot down. The German carmaker wasn’t sure if Motherson could meet their standards. But Sehgal kept trying. “I still remember going into their office and the guy would say, ‘Look Mr Sehgal, we don’t pick up any part because it’s 10% cheaper’,” he recalled.

It took years of persuasion but ultimately Mercedes-Benz relented. They sent a team to assess Motherson’s facilities and gave the company a global order to manufacture grab-handles that are fixed above car doors. “It was hugely important,” Sehgal explained, because it allowed Motherson to demonstrate that it could meet the most stringent manufacturing standards in the automotive world. And that technical ability also signalled the start of a phenomenal phase of international expansion.

Luck of the Irish

Motherson’s ambitions to go global were also partly triggered by a bitter dispute at Maruti. The crisis began in 1997 after the Indian government allegedly unilaterally appointed RSSLN Bhaskarudu as the carmaker’s managing director, irking its JV partner Suzuki. The public spat continued unabated until June 1998, when both parties signed a memorandum of understanding. “That, sort of, set the cat amongst the pigeons,” Sehgal said, and compelled him to look beyond just India.

In 1999, Motherson established its first overseas office in Austria, followed by a manufacturing facility there, as the group decided to chase European original equipment manufacturers (OEMs) for more business. “We were kind of taken aback with the simplicity of how you can open a plant, and how willing the banks were and the government was to create jobs. That, sort of, was an amazing thing,” Sehgal said. “It was nothing like what we had to go through to set up a plant in India.”

Then, in 2002, Sehgal made his first international acquisition when officials at a carmaker told him about Wexford Electronics, an Irish wiring harness manufacturer that was going under. He sealed the deal for around €300,000.

It was a pattern that would repeat itself as Motherson went on a shopping spree, with its flagship MSSL acquiring 15 companies since Wexford. The latest was in March 2017, when it paid €571 million for a 93.75% stake in Finnish component maker PKC.

Motherson’s voracious appetite for acquisitions was supplemented by a willingness to form JVs (like MSSL) with companies that supply to its clients. These partnerships allowed Motherson to access critical technologies, tap into the experience of other suppliers, and strengthen relationships with carmakers.

Trust factor

“We never changed our focus. We were always a 100% OEM (supplier) and the carmakers then started to trust us because they knew that we didn’t have any other focus, or any other vertical,” Sehgal said. “And they could actually call us and say, ‘Chaand, look at this (company), look at this, look at this.’”

Sehgal’s talent for gaining, and retaining, the confidence of global carmakers didn’t just help Motherson pull off a string of acquisitions. In the long run, it turned out to be fundamental to the group’s success.

“The one thing he does is that he focuses a lot on the customer, and it’s all about providing solutions to the customer,” Ashish Nigam, an executive director at research firm Axis Capital, said of Sehgal. “And he’s such a good people person as well. This has resulted in him being very, very close to the top management of all his OEM customers.”

“The reason why he’s getting a lot of orders, the reason why OEMs approach him for acquisitions and all those things is that they trust him,” Nigam added. “They trust him a lot.”

Trust commands a premium in the automotive industry because often billions of dollars depend on a suppliers’s ability to keep information under wraps, explained Deepesh Rathore, co-founder of automotive consultancy Emerging Markets Automotive Advisors.

“In the car business, a lot of future product planning is done and relationships then become critical. Can an OEM trust you with its new product plan? Can you keep it safe? Can you work on it in confidentiality? And that’s where Motherson Sumi has done well,” he said.

Sehgal’s management chops also proved decisive, especially as the three dozen acquisitions and JVs piled up with little time to breathe in-between. “When you go for a rapid expansion, sometimes the breadth and quality of the management is simply not up to the task,” Rathore added. “Buying a company is easier, but managing it, turning it around and making money out of that business is where the challenge lies.”

The trick, according to Sehgal, is to keep ownership and management separate, which is why he resigned as MSSL’s managing director in 1995, just two years after it hit the bourses. “The ability to free the entrepreneur mind and allow professionals to run the company is very, very important. But a lot of people don’t even want to do that,” he explained. They want to be the bosses themselves, which…doesn’t give them the ability to think out of the box to a great extent.”

Generation shift

The same philosophy will hold as Sehgal now prepares to hand the baton to his son, Vaaman. “It does not affect the CEOs and the board of different companies, and all that. Every company has its own succession planning,” Sehgal said.

Although his father will keep a close eye, it’ll be up to the Columbia University alumnus to figure out how Motherson will cope with a rapidly changing automotive sector. One area of focus is how the component maker should position itself as the volume and complexity of electronic components in cars steadily increases.

“I think one of the really exciting things about the products that we supply is that they’re the ones where all these electronic components will really come in,” Vaaman said. For instance, the front and back bumpers and two exterior mirrors, all of which Motherson manufacturers, are key real estate for adding sensors. And the information relayed by these sensors will be displayed on the dashboard, which is also manufactured by the group. So, with a dedicated team of 1,700 software engineers and designers, Vaaman is attempting to see how best Motherson can emerge as an integrator, pulling together different technologies and platforms to provide OEMs with a complete package.

But for all the in-house research & development, Sehgal senior is clear he doesn’t want Motherson to run ahead of itself. As the car industry transforms, he insists it is foolhardy to predict what carmakers may want tomorrow, or the day after. Instead, Motherson’s mantra is simple. “Our job is to respond to the customer’s needs,” he said.

It’s what Sehgal has been doing since walking into Maruti’s office some 35 years ago.

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