All eyes on India
Besides dealing with a global economic downturn, Sandvik in India had to cope with slowing economic growth and inflation in 2012. Still, the outlook is bright.
"2012 and the first half of 2013 have been challenging, but things will get better from now on," says Ajay Sambrani, Managing Director of Sandvik Asia, head-quartered in Pune, 150 kilometres from Mumbai on India's west coast.
"I'm optimistic," he says. "Last year inflation was nearly 9%, and now it is down to 6%."
Sandvik came to India more than 50 years ago, after Jawaharlal Nehru, the country's first prime minister, visited Sandvik's headquarters and factory in Sweden and invited the company to establish itself in India. Today Sandvik has 2,500 employees in Pune and seven other locations in India. In Pune, Sandvik's facility is close to several other Swedish companies in an area jokingly called "Svea Nagar" (Swedish village). The 8,700 square meter facility includes both research and development operations and also the headquarters for production and sales. Inside the facility is a day care center for employees' children.
In 1991, India began liberalizing its economy. Monopolies disappeared, tariff barriers were lowered, and new markets were opened to foreign investors. Since then, the country's economic growth has been surpassed only by that of China.
But, in the past couple of years, the Indian growth engine has run into problems. Reduced global demand has not hit as hard because the domestic market is so large. Instead, it is the domestic inflation rate, a result of an overheated Indian economy, that creates problems.
"This year, India's growth is 5%," Sambrani says. "That's 1.5 percentage points lower than expected. But the potential is huge. India has the world's third-largest reserves of coal and the fifth-largest reserves of iron ore, and 70% of the assets are still not exploited."
Products for the Indian market
A quarter of Sandvik Asia's revenue comes from products aimed at the Indian mining industry. In May this year, the company launched a new rock drill for coal mining, the 160 D Surface drill rig. The drill was developed in India for medium-sized Indian companies.
"India's energy needs are enormous," Sambrani says. "The mining industry wants to extract more coal, but it may have to wait for environmental clearance from the government. It affects us. But soon I believe it will be solved and then take off again."
India's cities are growing at a record pace. By 2030, nearly 600 million Indians will live in urban areas, double the number today. Urbanization requires significant investments in infrastructure. According to the global management consulting firm McKinsey, India must invest 1 trillion U.S. dollars over the next two decades to develop roads and public transportation and other infrastructure facilities. The expansion of India's cities presents a large potential for Sandvik Asia, and Sambrani thinks the business areas Sandvik Mining and Sandvik Construction have considerable opportunities to grow.
Not just India
"We see great potential in Sri Lanka, Burma and Bangladesh because of the right demographics and an impressive GDP growth that these countries are currently witnessing," Sambrani says.
"Even in the small kingdom of Bhutan in the Himalayas, we have a big market, as the country is investing heavily in the development of hydropower."
Sandvik has no more room to expand in Svea Nagar in Pune, so the company has bought land to build new facilities in Chakan, 30 kilometres away, starting in late 2013. Sandvik plans to manufacture mining and construction products there, as well as create a new research and development center and a workshop to repair mining and construction equipment.
The R&D center in India was Sandvik's first outside Sweden."We are constantly hiring new researchers and engineers to our growing R&D center, which also works for Sandvik in other countries," Sambrani says. "We have more than a hundred engineers working for Sandvik globally at the center."