How Ashok Leyland gets India on the move

Think Ashok Leyland and the first thing that comes to mind is that it is India’s second-largest producer of trucks and buses. Yet, what is perhaps not as well-known is that it began operations as a company assembling Austin cars in 1948.

The architect of this script was Raghunandan Saran, who was dispatched to Chennai by Prime Minister Jawaharlal Nehru to set up an automobile plant. The entity was named Ashok Motors after Saran’s son. In hindsight, it was perhaps not the wisest of decisions setting up an auto plant in Ennore, which was close to the sea and posed corrosion risks.

Incidentally, Raghunandan Saran died in an air crash, and his widow, Raksha Saran, was on the board for many years. Prior to Partition, she had served as Vice-Chancellor of Lahore University.

British Leyland drives in In 1955, British Leyland entered the scene to make trucks and buses at Ennore. It is from here that the Ashok Leyland, or ALL, story literally began covering four key strands: product technology, production capacity, people, and sales & marketing.

In the early stages of Indian manufacturing, until the 1980s. it was the mandarins in Delhi who called the shots on everything — be it engine horsepower, size of tyres or product specifications. It was also an era of scarce forex reserves, so import substitution was a major driving force.

Technology transfer was also dictated by the Centre, as also the technical know-how fee, with 2.5 per cent as the royalty cap for the international collaborator. Predictably, this proved to be an era of second-class technology.

British Leyland managed product development and technology that complied with the Centre’s phased manufacturing programme. ALL also had managing directors from Britain until 1978. Things changed in the second phase when RJ Shahaney took over as MD. He came from a public sector background and was committed to technology. As a result, the company was the first to hit the market with full air brakes, rear engines and so on.

Shahaney played a big role in bringing new products for the mass market; his tenure saw agreements with Hino Motors for engines and ZF for transmissions. It was he who sowed the seeds for technology at ALL even if these were still largely technology imports through collaborations.

In 1987, the Hindujas acquired ALL, and along with them came Iveco to push its technology into India. Iveco had a big role in determining products, engines and technology.

Technology self-reliance When R Seshasayee took over as MD in 1998, it was clear to him that the company would never become successful if this state of affairs continued. A 40-year-old ALL veteran who recently resigned as non-executive Vice-Chairman, he pressed shareholders and the Board to take key initiatives focussed on technology self-reliance. The Hino engine platform was revived and the process of creating new engine variants kicked off in parallel.

In 2006, Seshasayee persuaded the Hindujas to call off the joint venture with Iveco and buy back the stakes. The third phase of growth saw a huge improvement in engines and many firsts in the commercial vehicle space, including low-floor buses and a host of new systems.

According to industry observers, the Technology Centre was also a key initiative and a critical contribution from Seshasayee. Huge strides were made in electronics, GPS, fleet transport solutions and so on. People were hired from Detroit, and the company began breaking free of the shackles of the past.

Production capacity marks the second strand of the Leyland journey. The licensing regime post-Independence was so restrictive that companies were constantly worried about reducing production. ALL once made 1,625 industrial engines when the licensed capacity was 1,500. Its management had to defend this to the mandarins in Delhi and seek exemption from being fined. The irony was there was a long waiting list for industrial engines!

Potholes on the road While power shortages also had to be contended with, the other issue was getting a manufacturing licence for expansion. British Leyland had to dilute its share to 51 per cent as a condition for expansion, but did not agree to fund the exercise. Shahaney then decided to raise vehicle output to 40,000 from 15,000 units to get over the supply constraint.

Getting a licence for expansion required factories to be located in backward areas; units were consequently set up in Hosur (Karnataka), Bhandara (Maharashtra) and Alwar (Rajasthan). SVS Raghavan, Ex-Chairman of BHEL, who had joined ALL in finance, and Seshasayee then crafted the sales tax incentive structure with the State governments.

The market then abruptly collapsed and capacity remained underused across the plants. In the next phase, when licensing was scrapped in 1991, ALL set about optimising capacity utilisation. The Pantnagar plant was inaugurated in 2010; today, it is a global benchmark for truck production.

Labour pains The third strand of the ALL journey is its people. In the early days, British managers helped set work standards. While the 1950s and 1960s were flourishing years, things changed in the 1970s when the British Labour party took office in the UK. It coincided with the labour movement in India, which was reflected in a progressive deterioration in shopfloor practices. The union was dominant on the shopfloor well into the 1990s.

Many companies in India went through challenging times, and ALL saw prolonged strikes on a few occasions. In the early days, the British management tried to compromise, and indiscipline was tolerated for years. When Seshasayee took over as MD, he realised the company needed to engage with people directly beyond just the unions. Today, there is a committed workforce, and stoppages have come down. Productivity too is up; people at Leyland credit Seshasayee for this transition.

New tracks The fourth strand relates to sales and marketing. Till 1991, the company was constrained in production by the licensing regime. Naturally, the focus was on the South; it ended up being weak elsewhere. Sales and marketing were confined to a handful of dealerships in the North and the East. Today, under Vinod Dasari as MD, there is a stronger footprint of sales and marketing where ALL has gained market share.

On the subject of governance, there were concerns over whether the Hindujas could emulate the British when they took charge of ALL in 1987. As insiders recall, they did not disturb the management, and both Shahaney and Seshasayee continued their work uninterrupted in the new ownership regime. “The Hindujas consistently supported professional management and helped establish standards of governance comparable to the best in the country,” says Seshasayee.