Usha Martin: Competitive Advantage Through Vertical ...college.cengage.com/geyser/hill_9781305502277/pdf/hill_guided_usha_martin_ch09_case.pdfproduct groups in 2011).1 strategy Usha

Nitin Pangarkar (National University of Singapore), Mohit Agarwal (Indian Institute of Technology, Kharagpur) and Natasha Pangarkar (Williams College).

In June 2012, Usha Martin, a prominent Indian engineering conglomerate, faced key decisions about maintaining its past performance. The company, which was founded for making steel wire ropes, had under-taken end-to-end vertical integration by making massive investments in steel making, captive power plants and even coal mines which had afforded it significant advan-tages in terms of consistent product quality and stable supply while shielding it from fluctuations in input prices. The broader economic environment was chang-ing, however, and it could have a significant impact on the continued feasibility of Usha Martin’s strategy. Specifically, economic growth in India, which accounted for more than 70% of Usha Martin’s sales in most years, had slowed down significantly. In this slow growth en-vironment, Usha Martin’s extensive vertical integration, especially the large recent investments made in steel making, coal mines and power generation, could prove to be problematic. The export markets of the company were also slowing, further adding to the challenge of utilizing the extensive capacity.

HistoryUsha Martin was founded in 1961 by two brothers, Mr Basant K (or BK) Jhawar and Mr Brij K Jhawar. The Scottish company Martin-Black partnered the Jhawars by providing resources such as technology and capital and hence the name—Usha Martin. The foundation stone for the company’s first factory—a 100,000 sq ft facility which could produce 3,600 tonnes of wire ropes—was laid

on 15th August 1961 in Ranchi, then a modest-sized town in northern India. Wire ropes were an attractive product for the startup company because they could be used in a wide variety of applications such as oil exploration (rigs), elevators, cranes, fishing, construction, mining and general engineering sectors. Bihar, the Indian state of which Ranchi was a part, was extremely rich in minerals such as coal and iron ore and this factor probably played a significant role in the location of the plant which took eight months to complete. Soon after startup the com-pany faced an acute water shortage because the nearby river was running dry but the company was able to over-come this challenge with the cooperation of the local community. Despite the initial difficulties, in the plant’s first full year of operations (1963), the company earned its maiden profits and also paid out its maiden dividend. The company also successfully adapted the technology shared by Martin Black to suit the Indian conditions including a redesigned rod-patenting furnace which could use kerosene. Having successfully commenced production, expansion was the next challenge and the company embarked on expanding its output from 3,600 tonnes to 7,200 tonnes. However, all was not smooth sailing and in 1965 the India-Pakistan war broke out which derailed the Indian economy and pressurized demand and sales. In what was to become the norm, the founders saw the adverse environmental development as an opportunity rather than a threat. The company managed to not only boost its production but with the domestic market stagnating, it ventured into interna-tional markets.

By 2012, the Usha Martin Group had become one of India’s biggest industrial conglomerates, not only present in the domestic market but also in several in-ternational markets (see Exhibit 1 for a timeline of the

Case 26Usha Martin: Competitive Advantage Through Vertical Integration

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C-348 Case 26 Usha Martin: Competitive Advantage Through Vertical Integration

Date Event description Category of Strategic initiative or accomplishment

1960 Usha Martin Industries (UMIL) begins construction of a wire rope plant with 3,600 tonnes per annum capacity

Start up plant construction

1962 Production commences at the plant

1965 Collaboration with CCL Systems of UK to form Usha Ismal to manufacture rope accessories and splicing equipment

Product extension/diversification

1972 Forms Usha Alloys and Steels (UASL) to manufacture steel billets Product extension/diversification

1975 Sets up a machinery division at Bangalore for manufacture of wire drawing and allied products in collaboration Marshall Richards Barcro, UK

Product extension/diversification

1979 UASL sets up a wire rod rolling mill at Jamshedpur to supply wire rods for its wire rope plant

Backward integration

1980 Usha Siam Steel Industries formed in Thailand as a joint venture for manufacture of wire, wire ropes and auto cables

Internationalization

1986 Usha Beltron (UBL) incorporated as a joint venture between Usha Martin Industries and Bihar State Electronics Development Corporation, AEG Kabel, Germany (now Kabelrhydt and a member of the Alcatel group) and DEG, Germany to manufacture jelly filled telephone cables (JFTC).

Product extension

1991 Successfully completes thencontract to supply the parallel wire stay cables for the Second Hooghly Bridge at Kolkata and establishes the company’s capability for manufacturing sophisticated special cables.

Completion of a key contract

1988 UASL merged into UMIL Rationalization of internal portfolio

1990 Usha Ismal merged with UMIL Rationalization of internal portfolio

1995 UMIL sets up a mini blast furnace at Jamshedpur to reduce cost and improve productivity.

Vertical integration

1996 UMIL sets up a wire rod mill at Jamshedpur to produce higher weight coils for better productivity

Product extension

1998 UMIL merged with UBL Rationalization of internal portfolio

2000 IT division within the parent company demerged and named Usha Martin Infotech (UMITL).UM Cable established as a wholly owned subsidiary to set up a greenfield plantCommissioned a 25 MW thermal power plant at Jamshedpur for captive consumption.Acquired majority stake in Usha Siam Steel Industries, Bangkok because of financial troubles of the joint venture partnerAcquired an 80% stake in Brunton Shaw, UK, from Carclo Group

Rationalization of internal portfolio

Product extensionVertical integration

Restructuring of an international JV


Exhibit 1 Timeline of Usha Martin’s development

(continued )


Case 26 Usha Martin: Competitive Advantage Through Vertical Integration C-349

Date Event description Category of Strategic initiative or accomplishment

2001 Usha Matin Singapore (Pty.) to set up as a distribution facility at Singapore for wire ropes.In order to increase the capacity the company sets up second unit in at Jamshedpur


Capacity expansion

2003 Divested its rolling mill division at Agra with an intention to focus on core business.Company name changed to Usha MartinJoint venture with Gustav Wolf of West Germany to form Brunton Wolf Wire Ropes FZCO located in Dubai.Obtains a prestigious order from Otis Elevators for supplying cables on a world-wide basisSuccessfully creates new facilities by modifying the cable plant to manufacture value added products such as bright bars, special wires and conveyor cords.

Product and facility rationalization

Name changeInternationalization

Key customer account

2004 Starts its DRI and WHRB power plant at its steel division in Jamshdedpur Vertical integration

2005 Signed an MOU with Joh. Pengg for manufacturing of the speciality oil tempered spring steel wire.Acquired JCTL’s steel division.incorporates Brunton Shaw America Inc as a new subsidiary of the company.

Product extension

Backward integration through acquisition

2007 Acquired Netherlands based De Ruiter Staalkabel B.V. engaged in business of distribution and rigging.Starts wire rope plant in Houston, US.Buys a 76% stake in UK outsourcing services provider Converso Contact Centres for an undisclosed fee

Forward integration

New facilityUnrelated diversification

2010 Raises Rs 4681.5 million Qalified Investor Placement Capital raising

Sources: Profile-Usha Martin, 23 April 2012, ACE Equity - Indian Company Profiles, Accord Fintech For the information about the Converso acquisition, Personnel Today, 9/18/2007

company’s development and Exhibit 2 for the sales achieved by the company by 2011). Its range of products and services was diverse and included the manufacture and distribution of special steels, alloys, cables and wires; telecoms cables; industrial ropeways; cable car assem-blages and hydraulic systems. The company was also involved in the implementation of major engineering infrastructure projects and a few rapidly growing and technologically intensive services such as outsourcing services for the telecoms industry (see Exhibit 3 for a breakdown of the revenues contributed by the different product groups in 2011).1

strategyUsha Martin had adopted a simple strategy to compete in wire ropes, its first product. Business Today, an India based business publication summarized its strategy thus:

(Usha Martin’s) (S)trategy is simple: make high-end prod-ucts in specialized steel and wire ropes, and cash in on the low-cost advantage of India.2 The simple strategy had, however, evolved over time. There were six cornerstones to its strategy: seeking continuous cost reductions through several strategies; acquiring external knowledge to sup-plement its internal capabilities; proactively spending resources on Corporate Social Responsibility; building close relations with the local governments; continuously enhancing its product range often through moving into adjacent product areas and exercising control over the key inputs to its plants to insulate it from volatility of quality, availability and prices.

seeking continuously improved operations and lower costsUsha Martin continuously sought to improve its cost position. Vertical integration, discussed under a separate



plant which were preferred over the products of a sister company being one such example. Specific examples of its cost reduction strategy included the following:

• TPM, or Total Productive Maintenance, deployedwithin its plants was a key element of this cost reduc-tion strategy. TPM which involves a zero loss concept

heading, was an important aspect of this strategy. While seeking cost reductions, Usha Martin ensured, however, that the product quality was not sacrificed. In fact, it believed that high quality was the most effective dif-ferentiator. To this end, it also ensured that it deployed the latest technology and capital equipment available in the market—Italian drawing machines at its Ranchi

Exhibit 2Usha Martin’s sales growth over time

15,50018,020

19,650

23,090

29,500

25,140

30,470

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2004−05 2005−06 2006−07 2007−08 2008−09 2009−10 2010−11

Consolidated sales (in INR millions)

In M

illio

ns

($)

Source: Annual Report (2010–11) Exchange rates as at 31st Dec of each year were (INR/ US$): 2011 (53.88), 2010 (45.34); 2009 (46.3); 2008 (49.72); 2007 (39.43); 2006 (44.12); 2005 (45.20); 2004 (43.73);

Exhibit 3 Usha Martin’s revenue breakdown across different product divisions

Brightbars, 3%

Cables & others, 3%

Steel, 37%

Construction steel, 5%

Wire ropes, 34%

Wire and Strand, 18%

Source: Annual Report (2010–11)



also conducted external audits at all of its facilities to “take stock of existing safety measures and address any lacunae”3

• The company also sought out joint ventures withother companies to fill gaps in its expertise and enter new product segments. In 2006–07, for instance, the company entered into three joint ventures: with Joh Pengg AG of Australia to form Pengg Usha Martin Wires Pvt. Ltd. For manufacturing oil tempered and other specialty wires in Ranchi; with CCL group of UK to form CCL Usha Martin Stressing Systems Ltd. for post tensioning in civil works; and with the Emta Group to form Dove Airlines to offer charter air services

Corporate social responsibilityRight from its inception, Usha Martin had taken its Cor-porate Social Responsibility seriously by going well beyond the legal requirement. The company chose to partner with the community in developmental activities which would be scalable and sustainable. The successful efforts of the company in the social sector resulted in the company being awarded the TERI Corporate Award for Environmental Excellence and Corporate Social Responsibility for 2004–05.

As early as 1971 when it was still a small company, it used a bottom up approach and came up with KGVK—Krishi Gram Vikas Kendra (which translates to Centre for the Development of Villagers and Villages). KGVK worked on an extrapolated model of TPM which Usha Martin called TVM—Total Village Management— a unique process to create real difference in the lives of the rural poor through sustainable and inclusive ru-ral transformation (see Exhibit 4 for a schematic). The broad sweep of areas covered by TVM included Natural Resource Management, Education, Health and Sanita-tion, Livelihood, Women’s Empowerment, Renewable Energy and Capacity Building. By 2010–11, KGVK spanned 23 villages and specific initiatives included get-ting water to the villages through installation and repair of wells, organizing health camps, livelihood programs, capacity building programs like training of teachers and offering education facilities through KGVK schools, among others. To achieve widespread adoption and dis-semination of TVM activities, the company had formed TVM Gurukul which was a formal campus and included a primary school, a rural BPO, an auxiliary nursing cum midwifery school, demonstration farms, dairy entrepre-neurship models and residential hostels. The results of

at its core—zero breakdowns, zero accidents, and zero defects, allowed achievement of high levels of productivity through total and complete participation of all people inside the organization and developing self-managing abilities. After initial trials in a few plants Usha Martin had introduced TPM in all of its plants enabling it to become more resilient through the twin benefits of reduced production costs and increased competitiveness.

• Usha Martin had also implemented ERP systemsfor managing and enhancing business processes. On July 1, 2011, it also began its TQM (Total Quality Management) initiative, through which it would seek to continuously improve the quality of products and processes.

• Its cost consciousness extended to international operations as well. To save energy costs, for instance, Usha Siam (Thailand) was using natural gas.

• Thecompanyalsosoughttoincreasevolumethroughcapacity additions and technological upgrading, which, in turn, saved costs through economies of scale. Though its steel making plant had started with a modest installed capacity mostly to supply steel to its wire ropes plants, Usha Martin had undertaken an aggressive capital expenditure program to increase the plant’s capacity manifold. In 2011, for instance, the company had undertaken many new additions to its plant which were aimed at decreasing overheads, optimizing utilization of the available capacity and achieving complete end-to-end integration. These new initiatives had followed on the heels of upgrades, in 2009–10 which had boosted the production of steel from from 280,000 tonnes to 500,000 tonnes. This increased steel production had not only served the needs of the sister wire-producing units but had also served the growing market of specialty steel market.

acquiring external knowledge and expertiseRight from inception when it tapped into the technologi-cal expertise of Martin Black, its UK collaborator, Usha Martin had been open to ‘importing’ knowledge and ex-pertise from external sources.

• UshaMartin worked with experts and top univer-sities including IIT Kharagpur, a world-renowned technology institute, to design better products.

• Withanaimtomakeitsplantszeroaccidentzonesand create a safe working environment, Usha Martin



areas (Management and Computing) and were intended to provide a balanced mix of theoretical knowledge and practical training with industry professional as men-tors. The Academy was started in collaboration with the Indian Institute of Technology (Madras) and funded by the Usha Martin group.

Cooperation with government agenciesCooperation with various government agencies was an-other cornerstone of Usha Martin’s strategy. The first such cooperation happened in 1971 when India and Pakistan went to war over Bangladesh (which used to be East Pakistan) breaking away from Pakistan to be-come a separate country. The defense department of the Indian government needed special ropes for the INS Vikrant, its aircraft carrier, for which the government ap-proached Usha Martin. The company completed the task in record time, which earned it praise and goodwill from the government.

these CSR efforts were quite impressive. Between April 2009 and March 2011, the KGVK program had: im-proved access to healthcare for 30,000 people, improved access to drinking water for 72,100 people, and created sustainable income through self-employment or new job opportunities for 10,158 people.4 Co-operation of local villagers was a key advantage derived by the company through KGVK. This cooperation enabled Usha Martin to set up its projects quickly—e.g., it was able to start up its mines in record times for the Indian context.

The company also paid close attention to environ-mental issues. Its wire ropes and specialty products di-vision had reduced pollution by converting from oil to LPG and eliminating emission of un-burnt fuels in the atmosphere.5 Its steel and specialty products divisions enjoyed certification under the ISO 14001 Environment Management Systems from DNV of UK.6

In 2001, the company had also started an Academy (Usha Martin Academy) which would provide trained manpower to meet the needs of its home country. The degree courses offered by the Academy spanned two

Exhibit 4A schematic for Total Village Management

Source: Usha Martin Annual Report (2010–11)



improving its existing technology and infrastructure. The financing from the agency had been especially useful for establishment of captive Coal Preparation Plant (for power generation) and Direct Reduced Iron plants (for steel-making) and thus achieving end-to-end integration. In 2003, IFC owned a stake of 14% in the company and had invested as much as US$21 million.7

Probably in recognition of its past contributions to important government projects and also its social contri-butions, in 2008, the government of Jharkhand gave Usha Martin a lease to mine iron ore deposits, the only steel company to be granted a lease in the last twenty five years.8

The firm’s next notable project was the second Hooghly Bridge (an arm of the Ganges river) in Kolkata (Calcutta at that time). Kolkata had the first Hooghly Bridge, which was considered to be a civil engineering marvel in India at the time, and needed another bridge across Hooghly to handle the heavy traffic. Usha Martin manufactured the cables to support the bridge, the work for which commenced in 1979, under extremely tight deadlines, thus enhancing its reputation and also strengthening its relationships with the government.

Since 2002, World Bank’s International Finance Corporation (IFC) had supported the company in

Exhibit 5 Usha Martin’s Integrated Business Model




company was able to claim a number of accomplish-ments including a network of offices in foreign coun-tries such as UK, S Africa and the USA, prestigious ISO and industry-specific certifications and patron-age (sometimes repeat business) from global clients such as Vodafone.10

• In 1995 it partnered with Telekom Malaysia and other international investors to form Usha Martin Telekom Ltd., a GSM cellular network operator in Kolkata. The venture was sold to the Hong-Kong based Hutchison Wampoha in July 2000.11

• In2007, thecompanyacquireda75%stakeinUKbased outsourcing services provider, Converso.

• Attracted by the booming property sector, it hadformed Usha Breco Realty Limited to construct af-fordable housing. By 2010, the new subsidiary had already commenced its second project in Mumbai.12

• It had also formed Usha Martin Education & Solutions Limited (UMESL). In 2009, UMESL had forayed into providing standardized end-to-end so-lutions and school management services to enable the creation of a national network of high quality English medium K-12 schools with a focus on smaller towns and cities in India. The company had tied up with Pearson to help the schools access con-tent such as books, worksheets and assessment tools. UMESL also aimed to offer schools Pearson’s cutting edge ERP software solutions for schools.13 In 2010, UMESL also launched Usha Martin people search which would offer innovative recruitment solutions to the industry while simultaneously offering placement services to the students of Usha Martin Academy.14

Vertical (or end-to-end) integrationControl over the complete value chain formed a key ele-ment of Usha Martin’s strategy, which also set it apart from its key rivals who sourced key inputs such as wire rods from external suppliers. Starting with making wire ropes, it had backward integrated into making steel, which was the raw material for making wire ropes. It had further backward integrated into coal mining and power plant operation which were inputs into the steel making process (see Exhibit 5). From the company’s perspec-tive, this end-to-end control over value chain shielded it from fluctuations in availability of inputs as well as their prices and thus enabled achievement of stable profits. In 2007, Mr BK Jhawar predicted that the company would save between INR 1.3 to 1.5 billion because of its verti-cal integration.15

Product extensionThroughout its history Usha Martin had sought and ex-ploited opportunities to extend its product range. This had included many ‘backward’ movements in its value chain (e.g., in making raw materials or intermediate products), a few ‘forward’ movements in the value chain (e.g., into products with greater value added or in im-plementation of projects which utilized its key product of wire ropes) as well extension into related products (e.g., into niche or sector-specific applications such as telecom cables) and sometimes even into products unre-lated to its core business (see Exhibit 5 for a schematic of the company’s end-to-end integration).

• In1965, it formedanew jointventurenamedUsha Ismal Limited in collaboration with CCL Systems Ltd, UK for manufacture of rope accessories and splicing equipment at its factory at Ranchi. The new company was merged with the parent company in 1990.

• Ina forward integrationmove,UshaBreco,a jointventure with Breco (UK), was formed in 1969 to de-sign, manufacture, erect and commission ropeways in India.

• In 1975, another company “Usha Alloys & SteelsLimited" (or UASL) was formed for the manufacture of steel billets at Adityapur, Jamshedpur (at a distance of 106 km from the original Ranchi plant). This com-pany was also merged with the parent in 1988.

• In1975,itsetupitsMachineryDivisionatBangalorefor manufacture of wire drawing and allied products in collaboration Marshall Richards Barcro Ltd. UK.

• In 1979, in order to obtain steady supply ofwirerods for its wire rope plant, UASL set up a Wire Rod Rolling Mill at Jamshedpur.

• In1986, thecompany joinedhandswithBiharStateElectronics Development Corporation, to promote Usha Beltron Ltd. (UBL) which would manufacture Jelly Filled Telephone Cables in collaboration with AEG KABEL of Germany. This move came on the heels of the opening up of the cable sector by the Indian government in 1985. Later, the company migrated part of its output to fibre optic cables and by 2001 it com-manded 15% of the Indian market for optic cables.9

The company had also undertaken a number of unre-lated product diversification moves.

• In1994,thecompanyformedUshaCommunicationsTechnology (later renamed UshaComm) to provide billing and customer care and operational support systems for telecom service providers. By 2012 the



internationalizationUsha Martin’s first international foray was its joint ven-ture in Yugoslavia for production of steel wire ropes and strands—Unis Usha Tvornica Celicne Uzabi Visegrad. After the disintegration of Yugoslavia in 1991, Usha Marin walked away from the joint venture but was in-vited back to manage the joint venture by the Bosnian government in 2003.16

In 1980, Usha Martin registered a joint venture company in Thailand, called Usha Siam, in which it held a 49% stake. Usha Siam manufactured rope wires and wire ropes, the core products of the company, which were used in various applications in different industries. Usha Siam also served as the company’s manufacturing hub outside India. Commercial produc-tion commenced in 1982 with an. initial capacity of the plant at 10,000 tonnes per year, which had increased to 39,000 tonnes by 2011. The plant was the largest integrated plant in Thailand and 40% of Usha Siam’s products were exported to USA and Europe.

The Asian financial crisis had a major negative impact on several Asian economies, especially in east Asia. The crisis began from Thailand with the collapse of the Thai Baht. This development affected Usha Siam significantly because its partner faced financial troubles. Adopting a long term perspective, Usha Martin acquired the part-ner’s stake and made it a wholly owned subsidiary.

In 1988, Usha Martin began penetration of the UK market with a representative office in Scotland. Within 2–3 years, Usha Martin products had been successfully adapted and introduced in several European countries such as the UK, Germany, Italy and Holland. In 1994, a wholly owned wholesale distribution company, Usha Martin International Limited (UMIL) was started. With a warehousing facility in UK the company was expected to help its parent deepen the penetration of its prod-ucts. Wire rope manufactured in India and Thailand was imported and sold via the distribution company. Sub-sequently, Usha Martin recognized a need to expand business and identified opportunities to add value to its portfolio by entering oil services and rigging operations. To this end, in 1997, the group acquired EMMC, an emerging company in the wire rope application for the oil and gas sector in the North Sea.

The next opportunity identified by the firm was the acquisition of Brunton Shaw, a specialist rope manufac-turer based in UK in October 2000. Brunton Shaw was the

One instance of the constraint posed by availability of inputs happened in 2004–05 when the company faced bottlenecks in production due to poor availability of inputs like iron ore and coal and was also seeing fluctuating prof-its due to the volatility in prices of steel. Following this, the company proactively commissioned a steel plant and also secured rights to coal mining with production com-mencing in 2005–06. Interestingly, all of the key activities such as wire making, steel making, coal mining and power plant operation were located in geographic proximity (100 kilometers) to each other. The company also rapidly scaled up its steel-making capacity and started supplying almost half of its specialty steel to external customers in automobile and engineering industries.

Mr BK Jhawar, USha Martin’s Chairman identified total control over the quality of wire rods as another important benefit of its vertical integration strategy. The benefits of its integrated business were well sum-marized in its 2010–11 annual report. “Cost com-petitiveness has been the driving force behind the integrated business model followed by the company. The benefits are all the more visible in current regime of high commodity prices. Ongoing projects . . . will further strengthen company’s cost competitiveness. Captive mines provide not only a cost advantage but also a better quality due to control on inputs and more importantly, consistent production free of uncertainties in supply of raw materials.”

evolution of strategyWhile following its three-pronged strategy of capacity expansion, product extension and end-to-end integration, the company also exploited opportunities as they became available—specifically it pursued acquisitions (rather than its usual modes of organic growth or joint ventures) to bolster its competitive position, enter new products or extend its geographic footprint, or a combination of the above. In 2004, the company executed a MOU with the north India based JCT Ltd. for acquisition of the com-pany’s steel business—which would bring into its con-trol the company’s facilities for manufacturing steel wire and wire rope products in North India. In 2006–07, the company took over a steel rolling plant in Agra which it slotted into its Construction Steel Division. It had also undertaken other acquisition such as those of EMMC, Brunton Shaw and Converso, which were discussed un-der the heading ‘Product Extension’.



2nd largest wire ropes manufacturer in the UK with an an-nual capacity of 6,000 tonnes. More importantly, Brunton Shaw operated in a niche branded segment offering rope for mining, cranes, elevators and nylon-coated wires and its revenue realization per tonne of wire rope was almost twice that of Usha Martin (US$3000 per tonne versus US$1600 per tonne).17 The additional capabilities complemented Usha Martin’s portfolio and enhanced its manufacturing capabilities to allow production of niche products for the European market. After the acquisition, Usha Martin further enhanced Brunton Shaw’s capabili-ties and competitiveness by consolidating rigging facili-ties, expanding the fishing rope business, growing the crane rope market share and cutting fixed costs. It also undertook additional capital investments. Both these ini-tiatives strengthened the company’s ability to serve cus-tomers in markets such as Canada.18

In 2001, Usha Martin set up a company in Singapore, Usha Martin Singapore Pte. Ltd., to fulfill its orders in the South East Asian region and simultaneously grow its market share. Because of its proximity to the two key manufacturing hubs of India and Thailand, the Singapore operations enjoyed a status as the regional dis-tribution center in Southeast Asia and the Pacific. In fact, Usha Martin’s subsidiary in Australia—Usha Martin Australia Pte Ltd.—was fully funded by the Singapore operation—and by 2011 the subsidiary had achieved sales of US$10 million and also earned positive profits. The Singapore company also oversaw the conversion of representative offices in Vietnam and Indonesia into subsidiaries and oversees the company’s business in New Zealand, Australia, Indonesia, Vietnam, Malaysia, Myanmar, Korea and China.

By 2003, UMIL had recognized the potential of the Middle East and Africa markets and set up a joint venture company (60% stake by Usha Martin) in Dubai to manufacture wire ropes in collaboration with Gustav Wolf of Germany–Brunton Shaw Middle East FZE which specialized in manufacturing of wire ropes. With a production capacity of 6000 tonnes per annum, the company was expected to serve as a manufacturing base and supply markets outside Asia. The company was later renamed to Brunton Wolf Wire Rope Com-pany FZCo (BWWR)

Also, in 2005–06, the company hatched plans of setting up a wire manufacturing facility in USA under Brunton Shaw Americas Inc., a new subsidiary. Brunton Shaw Americas Inc was to be a production and manufacturing center while Usha Martin Americas Inc was the distribu-tion center of the company in America.

With an aim to exploit the huge demand created by the infrastructure boom in China, the company set up offices in China in 2007 and planned to sell special quality wire ropes for elevators, mining and the con-struction sector through its factory in Bangkok (which served the rest of the Asian markets) and warehouses in Singapore. The company did not make greater resource commitments to China however. As stated by one of its senior managers (Dr Bhattacharya): “It is fine to jump into the bandwagon headed to China, but my interest is greater in Europe, which offers the high-end market.”19 In another publication, Mr BK Jhawar, the company’s Chairman at the time said: “China is a complex market. I understand there are over 500 factories in China mak-ing some 400,000 tonnes of wire and rope. Though by far the world’s biggest producer of rope, Chinese capac-ity remains highly fragmented. It is also a very complex market. I can’t tell you at this stage whether Usha Martin should be building a factory in China or have a market-ing alliance with a local company.”20

In 2007, Usha Martin acquired a Dutch company called De Reuiter Staalkabel B.V. Netherlands which fo-cused on high tech non rotational ropes for off shore ap-plications (oil and gas sector). Subsequently, the newly acquired operation was made into a subsidiary of Usha Martin International Ltd.

Exhibit 6 shows the international organization of Usha Martin and Exhibits 7 and 8 show the performance of Usha Martin’s internationalization efforts.

PerformanCeUsha Martin’s performance was impressive with regard to varied performance metrics. Exhibit 2 shows the sales growth attained by the company between 2004–05 and 2010–11. Profits before tax had grown from 133.5 mil-lion for the year ended March 2003 to 1384 million for the year ended March 2007 and further to 1453 million for the year ended March 2011 (see Exhibit 9). The sales and profit growth had been attained by successfully op-erating several manufacturing plants, captive iron ore and coal mines and a vast network of distribution centers and marketing offices which supported an ever growing and diverse customer base. For the 2010–2011 year, it exported approximately 16.26% of its total sales, which represented a decline from 25.39% previous year.21 The company’s success in international markets was even greater for specific product lines. It exported 60% of its wire rope output, for instance.22 In addition to these



Exhibit 6 Usha Martin’s International Organization

Internationaloperations

Usha MartinInternational Ltd

Usha Martin UKLtd

De RuiterStaalbakel NV,

Netherlands

Usha MartinAmericas Inc

Brunton WolfWire Rope FZCO

Usha Siam SteelIndustries

Usha MartinSingapore

Usha MartinAustralia Pty Ltd

Usha MartinVietnam

Company Ltd

PT Usha MartinIndonesia


Exhibit 7 Usha Martin’s revenue breakdown across key geographic regions

India, 70%

Europe, 10%

Asia Pacific, 12%

Middle East, 5%

America, 3%


metrics, the company had earned accolades from its part-ners (such as financiers), analysts and customers alike.

• MrSBNair,DeputyManagingDirectorandGroupExecutive of India’s largest bank, the State Bank of

India, said: “Usha Martin is one of our best clients. . . . We share certain characteristics of believing in long term relationships and a tempered outlook. . . . For a decade we have supported all of their ventures, do-mestic and international—and we see huge potential



Exhibit 8 Performance of Usha Martin’s foreign operations

Revenues in 2010–11 (growth) Profits in 2010–11 (growth)

Usha Martin International Limited GBP 41.0 million (−17.01%) GBP 2.6 million (−18.75%)

Usha Martin Americas Inc US$15.2 million (−21.25%) US$1.1 million (−8.34%)

Brunton Wolf Wire Rope FZCO US$18.8 million (+12.5%) US$1.5 million (−6.67%)

Usha Siam Steel Industries Thai Baht 1628 million (+9.04%) Thai Baht 86 million (+21.12%)

Usha Marin Singapore US$30 million (−10%) US$1.7 million (−52.78%)


Exhibit 9Income Statement (all figures in INR millions)

2010–11 2009–10 2006–07

INCOME

Net (of excise duty) sales turnover (revenues) and including other income

30671 25399 19816

PROFIT BEFORE TAXATION 2041 2400 1829

Provision for taxation 458 470 441

Profit after tax 1400 1715 1379

BALANCE SHEET

Liabilities

Shareholder’s funds 15570 14997 7210

Loan funds (including deferred tax liability)

18240 10092 8928

Total liabilities 33811 25089 16138

Assets

Fixed assets (net of depreciation) 27475 22491 9000

Capital work in progress 3824 6084 1971

Total fixed assets 31,300 28575 10971

Investments 1869 1869 1601

Current assets 16500 11343 8411

Current Liabilities 15858 16699 4875

Net current assets 642 −5356 3536

Note: All figures in INR millions. Exchange rates as at 31st Dec of each year were (INR/ US$): 2011 (53.88), 2010 (45.34); 2009 (46.3); 2008 (49.72); 2007 (39.43); 2006 (44.12).




times lay ahead and the company needed to think about possible adaptations to its past strategy.

notes 1. The bridge builder. By: Warwick, Martyn, Euronet,

13676792, Jul 2001, Issue 13 2. Usha Martin: A high wire act, Business Today, December 2,

2007 3. Annual Report 2010–11, Managing Director’s Statement,

Page 10 4. 2010–11 Annual Report 5. 2010–11 Annual Report 6. (2010–11 Annual Report). 7. Jhawars to take over Bosnian plant, The Economic Times,

29th Sep 2003, http://articles.economictimes.indiatimes.com/2003–09–29/news/27565184_1_wire-rope-jhawars-plant

8. Preparing for take-off Kunal Bose. Metal Bulletin Monthly. London: Feb 2008. , Iss. 445; pg. 16, 3 pgs

9. The bridge builder. By: Warwick, Martyn, Euronet, 13676792, Jul2001, Issue 13

10. http://www.ushacomm.com/corporate.html#Milestones 11. http://prashantjhawar.com/Person_PersonalProfile.asp12. Usha Breco announces housing project NBM & CW.

New Delhi: Dec 23, 2010.13. UshaMartin Education& Solutions forays into School

Management. Accord Fintech. Mumbai: Dec 17, 2009 14. Usha Martin Education flies high on launching Usha Martin

People Search Accord Fintech. Mumbai: Aug 20, 2010 15. Usha Martin: A high wire act, Business Today, December

2, 2007. 16. Bosnia woos back Usha Martin, The Economic Times,

Oct 2, 2003, http://articles.economictimes.indiatimes.com/2003-10-02/news/27548851-1-wire-rope-prashant-jhawarusha- martin-group

17. Usha Martin plans to buy European distribution company, wee.livemint.com, Sanchita Das, , 18 May 2007

18. Indian wire finds global markets Kunal Bose. Metal Bulletin Monthly. London: Apr 2006. , Iss. 424; pg. 23, 3 pgs

19. Usha Martin plans to buy European distribution co Sanchita Das,www.livemint.com, 8 May 2007

20. Indian wire finds global markets, Kunal Bose. Metal Bulletin Monthly. London: Apr 2006. , Iss. 424; pg. 23, 3 pgs

21. Calculated based on data provided on page 52 of the 2010–11 Annual Report

22. Profile-Usha Martin, 23 April 2012, ACE Equity - Indian Company Profiles, Accord Fintech.

23. SB Nair, Dy Managing Director and Group Executive, State Bank of India

24. Profile: Usha Martin Infotech, ACE Quity: Indian Company Profiles by Accord Fintech. 3rd August 2009

25. 2010–2011 Annual Report 26. 2010–2011 Annual Report

for the future. . . . Brand and Quality are two of Usha Martin’s biggest strengths and this definitely gives them an advantage.23

• In 2009,while complimenting the company on itspast strategy and performance, one analyst made the following comment: “For Usha Martin, the path to sustainable growth was long; the management con-stantly tried out innovative business practices. With initiative to diversify the customer base by venturing into the international markets, moving up the value chain and fully integrating its business process to maximize stakeholder value.”24

• MrNimishDeshpande,Director of Engineering atSchindler India, a subsidiary of one of the largest manufacturers of elevators of escalators in the world (Schindler AG), said: Our association dates to more than a decade in the field of elevator ropes. It has been an extremely rewarding partnership and we have had no complaints on either quality or supply.25

• In2009–10,UshaMartin’swireropesandspecialtydivision received an award for Excellence in Consis-tent TPM commitment from the Japan Institute for Plant Maintenance.26

The company’s competitive and past performance had also enabled it to raise substantial capital in global markets. For instance, in 2005–06, the company had successfully raised US$5 million through the issue of Global Depository Receipts listed on the Luxembourg stock exchange. In 2010, the company had raised INR 4.68 billion through placement to qualified investors. It had also received funding from the IFC.

tHe road aHeadThough its strategy of aggressive capital investments, end-to-end integration and proactive product extension had helped Usha Martin achieve significant competitive advantage and strong financial performance in the past, the future outlook remained far less certain. Analysts ex-pected weak economic performance through most major economies around the world, mature as well as emerging, and this weakness would significantly affect the demand for Usha Martin’s products. A demand slowdown would be particularly problematic because of Usha Martin’s end-to-end integration, which significantly increased its fixed costs. In fact, despite a 20% growth in consolidated sales, consolidated profits for the year ended March 2011 were lower than March 2010. Clearly, more challenging


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