We will do original designs locally

Chiranjoy Sen
The Economic Times

Honeywell’s worldwide chairman and CEO David M Cote was in Bangalore recently to inaugurate the firm’s second research facility. The head honcho spoke about why Honeywell is bullish on India, research areas it is focusing on and why US CEOs are vocal against the Barack Obama’s tax slap on offshoring companies.

How important is India for Honeywell?

First, it is an integral part of Honeywell’s global growth strategy. We are committed to India as a manufacturing location, as an export hub and most important, as a centre of engineering and research excellence. Our presence here has grown from 1,000 people in 2002 to more than 10,000 now. We have five local manufacturing facilities. The new 690,000 square feet new research facility — on which we spent $50 million — is the biggest within the company and can seat 3,000 people. Honeywell Technology Solutions (HTS) — the company’s global R&D and innovation group — is headquartered in Bangalore.

We expect to earn $600 million from our India operations in 2009, slightly more than $550 million in 2008. But this is significant given the fact that we have pared our overall earnings and profit forecast for 2009.

Given the current slowdown, how do you expect to outperform?

The groundwork started 5-6 years ago. Apart from an initiative called ‘One Honeywell’ launched a few years back — an unified focus on customers across 95 countries — we have concentrated on five things: growth, productivity, cash, people and neighbours. We have expanded geographically and launched new products quiet aggressively as our basic premise is to have a great position in a good industry. As a result we grew our revenues 19 percent in 2008, much better than our peers.

From a research perspective, do you treat emerging markets differently?

Our emphasis, both in India and China, is on doing more original design locally. There was a tendency to look at these countries as a place to manufacture stuff that was designed elsewhere. Design localisation really helps you understand the market. Most industrial companies do not do that well — we still tend to design in the US, Germany and the UK.

Now that understanding has helped us evolve the concept of East for East and we’ve been at it for three years now. We are trying to do a better job of co-ordinating between the India and China centres. There is no point trying to invent something separately for the China market and the India market when we are trying to address the same issue in both markets.

What are your focus areas in India?

Wireless (specially application of wireless technology, even for home applications) is one. Aerospace and software for any kind of controls are the other key areas. Aerospace vertical is a big team with 2,700 people and a lot of avionics development is taking place in Bangalore. Honeywell is collaborating with HAL to produce TPE331 aircraft engines in India. We are also pursuing a programme to re-engine the IAF’s strike aircraft Jaguar with its F125IN turbofan engine.

How do you react to President Obama’s tax plan that aims to curb offshoring?

We are a little concerned about this move. The policy assumes that American companies are doing something that they should not, but that is not the case. The argument is that companies that are moving jobs pay lower taxes, and therefore the proposed tax is needed to equalise that sop.

Most American companies would disagree with that and so would I, considering what we have done. We have not reduced our R&D or manufacturing capability in any developed market. If you take a look at our census, the number of people in the US is about the same as it was 6-7 years ago. The difference is that we have grown significantly in emerging markets.

Earlier, our sales outside of US were only 40 percent. Now it is more than 50 percent, and we could not have done that if we had not established operations in India, China or the Czech Republic. There is a lot of demagoguing that goes on in politics, and that is not good for the country. It could cause us to do things that do not make sense. I am fearful of this one but hopeful that in the long run, the Congress and President will take a relook. I understand the need for revenues and the fact that our taxes might have to go up. But it will be a shame if they did it this way. And we have all been very vocal on this one.