The Hindu Business Line : Wielding the Chinese arm with the Indian head — Mr Pritimoy Chakraborty, CEO, Zenith Finesse Ltd

Doing business with China is an art and, once it takes off, can be a win-win situation for both Indian and Chinese entrepreneurs. Instead of expecting the Chinese to invest in India, it is safer and more lucrative to invest there and work out a meaningful partnership. It is possible to use the highly streamlined Chinese manufacturing facilities to our advantage and carve out partnerships based on mutual confidence and trust.

Talking to Business Line recently on his success story, Mr Pritimoy Chakraborty, CEO, Zenith Finesse Ltd., said that during the last nine years that he has been in business, he successfully cemented ties with many Chinese companies, big and small. A journey that began with the import of China-made corporate gift items, for fast moving consumer goods (FMCG) majors such as Nestle, HLL, and ITC, is today a joint venture, in VCDs-DVDs, with a major Chinese audio-visual electronics company. Mr Chakraborty spoke about future partnerships and ventures with China, and also slipped in a few tips on how to conquer the Chinese hearts via the business route.

Excerpts from the interview:

Will Chinese companies ever invest in India?

Chinese companies will not invest so easily in India. They want to be global players, and India is an important market for them. To enter the market in a meaningful manner, they are willing to lend their manufacturing facilities to Indian companies like us. We control their machines, and our employees personally monitor the production at and shipments from their factory.

What is the advantage of such an arrangement for us?

Theproduct is manufactured to our specifications. We control quality, machinery and even the shipment time. Effectively, we get total control without any investment. And we also enjoy a firm commitment from our Chinese partner for supply of spares, so that our after-sales service back-up remains unaffected, and quality is not compromised. Spares are supplied free of cost with a few products, and for the rest we buy the spares at throwaway prices.

What do the Chinese stand to gain?

They know that we develop the much valued equity for Chinese products. And to that extent, our supplies enjoy high priority. The sale of spares is, however, in direct proportion to the equity we develop. The more we sell, the better the supplies, and more our benefit.

But isn't there a catch to all this?

Yes, once the market volumes reach critical mass, it becomes impossible to cater to the entire demand through imports alone. And the Chinese partner, shrewd as he is, knows that timely supply of both products and spares is very important. The assembly line approach is then adopted. Components are supplied in large quantities and assembling is done in India as per the Chinese system of manufacturing. The Chinese partner provides the training, thus creating technical collaborations which one-day may turn into equity partnerships.

The Chinese manufacturer knows that once you are used to his system of manufacturing, you become a committed buyer. The partnership works beautifully, without any equity tie-up. In today's competitive environment place of manufacture is immaterial.

But don't the Chinese invest in West Bengal, which is really is a gateway to the East?

The Chinese, I feel, are still not quite confident of investing in Bengal primarily because of inadequate infrastructure. But, above all, they are wary of the Bengal brand of Marxism. Communism with Chinese characteristics, they are comfortable .

Yes, from a logistics point of view, Bengal is the gateway to the East, and for China, it would be the best bet. With in trade, investments will come in, say, maybe 10 years from now.

For Indian entrepreneurs, on the other hand, it is a wise decision to invest in China as strikes are banned there. Unions cannot disrupt industrial operations and production will go on. We now have the opportunity to take full advantage of China's low-cost economy for our manufacturing needs.

Is your joint venture with Goldyip of China for VCD-DVD items a trend-setting one?

Being the first to do this in India, we are basically trying to bring the advantage of low-cost economy into India. We now have three audio-visual products made by Goldyip in the market under the newly launched Finesse brand. We plan to introduce more such products as desktop DVDs and DVDs with external speakers.We are also looking at other big Chinese companies for different consumer products, items such as hair-dryers, electric kettle-cum-tea pots, air-conditioners, and so on. The criteria are quality and commitment for going through similar manufactruring/assembling arrangements with training modules thrown in.

What about brand equity?

That is something we have to create. Goldyip is making our product as per our specifications and quality requirements, and has allotted a dedicated production line for our products for the next few months. Both schedules and costs are fixed, and there is no deviation from this.

What is the most important thing you have noticed in China during your business partnerships?

In India, red flags are hoisted to shut down factories. In China, red flags are hoisted to prove that the company is supported by the government and can be a stable partner. If I see a red flag on a CEO's car, I know for sure that there will be no hanky-panky with my supplies in this factory. Red flag in China is a symbol of trust, as businessmen world over have found out.

Are you doing anything in the Chinese toys sector, considering Zenith's earlier foray into corporate gift items?

The West Bengal Chief Ministerhas asked us to do something in the toys sector, and we have proposed a toy park in the State. We are serious about Chinese toys, as this is a big draw on our Chinese gifts list and we continue to supply quality toys in large numbers to FMCG majors. We plan to bring in the intelligent toys, made by Concorde International of China, a global player with whom Zenith has been working with for sometime now. They make world-class toys and sell in major markets of the world, including the US and Europe. We have imported some 10 million toys already from Concorde for Bournvita alone in the last two years. We are talking to Concorde for an arrangement similar to that with Goldyip. We will make the announcement in April, and it will be under the Finesse brand.

What would you advice potential Indian entrepreneurs who want to do business with Chinese companies?

The investors should enter into business under similar arrangements. That is, take on the responsibility of a manufacturer without actually putting up a manufacturing facility. Let West Bengal first emerge as a trading hub for quality China-made products, and then assembling/manufacturing will surely follow.

What plans for the future?

I want to establish the Finesse brand in India through more Chinese manufactured products. In the pipeline are such items as desktop DVDs and DVDs with speaker at affordable prices. Air-conditioners may take a little longer as they require a countrywide network of service centres. Chinese entrepreneurs are extremely hardworking and essentially believe in large-scale production.

From corporate gift items to retailing of audio-visual items, how has the transition been?

Corporate gifts is still our niche and we owe our success to such committed customers as Cadbury, Godrej, HLL (the beverage division in Bangalore). In retailing, we have started with audio-visual items, and as we go along, we will introduce more Chinese products with greater variations. We plan to achieve a turnover of Rs 100 crore by the end of 2006, and the audio-visual range should contribute handsomely to this figure.

Most Chinese companies in the small and medium enterprise segment can command large-scale production through efficient machines, skilled labour and good quality control. In China, a large-scale factory truly stands for high quality. While executing large orders, the Chinese manufacturer also ensures better prices for his suppliers owing to economies of scale. Chinese entrepreneurs are very quality-conscious, and Chinese businessmen always honour their contractual obligations.

What happens when you have complaints?

These are attended to promptly and, if found guilty, severe punishment can follow. The Chinese entrepreneur always honours contracts, and adheres to delivery schedules because the law in China is like a bullet in the neck. The Chinese government is fully conscious of the fact that foreigners are buyers of their products. As a businessman, I feel much safer in China than anywhere else in the world. First trial orders are placed, and if satisfied, we enter into an agreement in which a representative of the local government is present.

Is Zenith talking to any other Chinese product manufacturer?

Yes, an arrangement for desktop DVDs are now on trial.

What kind of a market are you looking at?

Our products are meant for all segments. . We already have a presence in New Delhi, Mumbai, Bangalore and Chennai, and our target is to sell 10,000 Finesse DVD pieces by April 2005. Personal DVDs will be launched in early March, and will be priced at around Rs 16,500.

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