Usha Martin steels itself for the future

Third-generation Prashant Jhawar talks to Marc Smith about the reasons for taking India-based steel manufacturer Usha Martin global, relationships with the Tata and Birla dynasties, and the gunfight that inspired the firm's CSR vehicle

As the world's financial markets enter a period of flux, one family-owned business is confident that it is in the right markets, at the right time, in the right place. However, as we sit in Prashant Jhawar's London office, talking about today's 5.5% drop in the FTSE, it is not the UK or Europe that provides the foundation for his optimism about family-owned Usha Martin Group, but his native India.

"We are in a fortunate position. The Indian economy is growing at just under 9% overall and the industrial side of the economy is growing at close to 14%," explains Jhawar (pictured, left, with Rajeev). "We've pretty much run out of capacity, but I don't see the global crunch affecting us in the near term, unless it turns into a full blown recession, in which case we will be affected like everyone else."

Jhawar is the third generation vice chairman of Usha Martin Group, a conglomerate of diverse holdings with a turnover of $800 million. The group has interests in media, IT, transportation and financial services, but its flagship company is Usha Martin Ltd, a publically-listed business split into three divisions: mining; steel production; and wire rope manufacturing, which was the original business started by BK Jhawar in 1960.
 
Of the three, Jhawar says the mining business is by far the most dynamic at the moment thanks to the current price of commodities. However, the other two business units are still going strong. In terms of growth, the steel business is growing rapidly due to strong domestic demand in India. In terms of diversity of profits, it's the wire ropes sector that is the clear winner. "We can make virtually any kind of wire rope that you can think of," says Jhawar. "We sell to more than 50 countries and we are the number two manufacturer in the world."

Despite this global reach, Jhawar says the family still sees their businesses as Indian. Upwards of 80% of the assets and 80% of the 4,500 staff are resident in India, although the revenues and profits generated outside the country are "not insignificant by any means," according to Jhawar. Significantly, he sees this balance between Indian and non-Indian businesses changing as the prospects outside of India improve.

Crossing borders
One such company is UK-based Usha Comm, a company founded by Jhawar himself in 1994, which deals with performance monitoring analysis for telecommunications processes such as billing and customer care software solutions. Headquartered in London, the firm was founded on the back of another business called Usha Martin Telecom, which won one of the first mobile telephone licenses in India. "Along with my father we decided to get into software and the way the service side of the business grew was very encouraging," says Jhawar. The firm is currently growing rapidly through acquisitions, such as UK company Converso, which it bought in September 2007. "Converso is a good brand. It has good customers and, going forward, we want to grow their business now that we have a good foundation," he says.

But it's not all about turnover and takeovers. As a family-owned business, UMG also has partnerships with other family businesses, particularly in the wire rope sector. "There's one German family we work with that has been in the wire rope industry for seven generations – they make a very special kind of wire rope – and they also own a minority stake in our company in Dubai," says Jhawar. "We have also recently joined forces with an Austrian family who manufacture very high-end wires, predominately for the automobile industry, which is 60% owned by them and only 40% owned by us."

Jhawar believes that there has to be a commercial reason for families to get together – it's not just a question of shared beliefs or interests – but he does acknowledge certain synergies. "Working with other families means there is a lot of empathy and understanding, and some of the compulsions of a family may not be purely commercial," he explains. "However, the bottom line is the person you are dealing with. As long as you strike the right chemistry and you can develop trust with each other, it's fine. Otherwise, no matter who's on the other side, you can't develop a relationship."

Other high profile relationships the family has developed over the years have been particularly beneficial to the business. Two of Jhawar's sisters married into the Birla family, whose business today has a market cap of $31.5 billion. One of the group's steel plants, meanwhile, is located just 15km from Tata Group's main steel plant. The firm has had a 25-year relationship with the Tatas, perhaps India's most celebrated business dynasty. This relationship is very much in evidence today through UM's role as lead supplier of special steels to Tata Motors. With Tata launching the world's cheapest car at the start of this year, UM's steel business looks set for even better growth in the future.

Like most businesses, developing relationships is vital in UMG's many lines of work and Jhawar, educated at St Xavier's in Calcutta, follows a particular style of management he calls "engaging India". Essentially, this is his contribution to the wider trend of positioning India as a global business centre. "One of our core strengths is running businesses in India on a sustainable basis for many decades," he explains. "We believe there is significant scope for families, particularly in Europe, to reinvent their businesses by establishing a competitive production and technology base in India."
 
He does not see this as a problem for multinationals, "who will probably go in on their own," but more so for family businesses, who tend to go with local partners unless they are very large in scale. "That's where we come in," he says, "as we bring over 45 years experience of doing business with partners across the world and we would like to take that further."

This easy ability to network is one that Jhawar seemingly learnt from his childhood. When asked about his memories of growing up, which was after India gained independence from the British, he recalls the "pomp and ceremony" accorded to visiting business partners by his father. "I remember lots of foreign collaborators coming to the house in Calcutta, traditionally between January and April, and cocktail parties being hosted on the lawn. We used to look forward to these parties once a year," he says.

At the time, Jhawar and his sister were living in a house that included many cousins, uncles and aunts. "We had an old Morris Oxford car – the Ambassador as it was known – with one chauffeur and one nanny who would drop 11 children at their respective schools every morning," he recalls.

His father, who was starting the family business in partnership with Scottish business Martin Black, was naturally less present. "He would travel to the wire rope plant, which is about 400km from Calcutta, on a Friday evening and be back in time to open the office on Monday morning," remembers Jhawar. "The only time we would really get to see him was on weekday evenings."

Despite his long absences, this hardworking man with a mission had a big impact on his children. "He had great patience and would never lose his temper, at least not in front of us," says Jhawar. "He took me to the wire rope plant for the first time when I was six, which was very exciting as we travelled by air. Of course, the factory was very small compared to what it is today, but it was fascinating to go into an actual manufacturing operation."
 
Jhawar believes it was probably a deliberate ploy by his father to introduce him to the business at an early age, and he also recalls being invited to sit at the dining room table with business partners when he was just 12 years old. Jhawar formally joined the family business in 1982 as a trainee in the purchase and sales departments of the wire ropes division.
 
Asked about the comparisons between himself and his father, Jhawar says his father was essentially an entrepreneur turned manager, whereas he is much more of a pure entrepreneur. "I am fortunate to have some excellent professionals who I can rely on to do the actual day-to-day management, some of whom have been close colleagues for 20 years," he says. In fact, from the family's perspective there is only one other family member who is active in the business – a cousin, Rajeev, who is based in Calcutta. "My father and uncle are non-executives now, although they come in for board meetings and are around to help Rajeev and me as required," he says.

Social responsibility
KGVK – The Centre of Development of Villages – is UMG's corporate social responsibility arm. Jhawar says that 70% of Indians still reside in villages and KGVK, which brings together  government, corporate entities and NGOs, is empowering 350,000 people in 700 villages across six districts. But it began in unusual circumstances.

UMG's original wire rope plant was set up in 1961 in Bihar, one of India's poorest regions but one that is rich with the raw material required for wire rope production. Within 12 months there was a lot of prosperity within the factory, but a mass of poverty on the outside. Jealousy and mistrust grew as people working inside the factory suddenly became the privileged few. There was a lot of pressure on the firm to employ extra people, and a flashpoint came in 1971 when rivalry between two factory unions led to a gun fight in which a union leader was killed.

"It was a very unfortunate incident as it happened outside the factory gates," says Jhawar. "When people go outside and shoot each other there's very little you can do about it." Jhawar's father and uncle soon realised that unless they started working with the community it would be very difficult for the firm to exist. However, they were greeted with a lot of hostility and people didn't trust them. It took several years to create an environment of trust.

At that point in time the family was essentially focusing on creating more employment and helping with scientific methods to improve the local agriculture. "The mission was fairly limited back then," admits Jhawar, but times have changed and the focus today is water. "We believe that wars in the future won't be fought over oil, the way they are now. We believe they will be fought over water."

The family doesn't believe in writing a cheque and walking away. "That's the last thing we would ever do," says Jhawar who goes on to explain that KGVK is a professional outfit run on fairly strong corporate lines. "We invest money from both the family and the business and we leverage it with aid from other Indian corporates, local government and international aid agencies. We are aiming to leverage our contribution by a factor of seven."
 
Jhawar says the family has realised the significance of what they are doing from a business continuity perspective. "We train the villagers to become truck drivers and handling agents for material so they can load and unload material," he says. "They can manage themselves, own their own trucks, and we can help them to get bank loans to get things off the ground." The benefits of this are clear as the future of these workers become tied up with the future of the company through the processing of the area's rich vein of raw
materials.
 
The family has started to use KGVK as a way to educate their own children. "They've had a flavour of what it's all about during the holidays, they'll go and spend a few days understanding what's happening and the importance it has for both the family and the business," says Jhawar. "KGVK was started at an age when corporate social responsibility was not fashionable, it wasn't even a concept, but it has really blossomed."

If any further evidence of the importance of KGVK was needed it is summed up neatly by Jhawar. "Two things have been very vital for our family. First, having access to the raw materials that our business relies on and second KGVK," he concludes. "That's how important our CSR arm is for our family."

Click here to read our web exclusive: Usha Martin Group vice-chairman Prashant Jhawar speaks candidly about how buying a local newspaper helped insulate his family's steel business from corruption.