dilip case

7/30/2019 Dilip Case

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ASIAN CASE RESEARCH JOURNAL, VOL. 12, ISSUE 2, 233248 (2008)

ACRJ

This case was prepared byMargie Parikh of the BK

School of Business Manage-ment at Gujarat University,as a basis for class discussionrather than to illustrate eithereffective or ineffective han-dling of an administrative orbusiness situation.

Please address all correspon-dence to Margie Parikh, BKSchool of Business Manage-ment, Gujarat University,Ahmedabad 380009, Gu-jarat, India. E-mail: [email protected].

2008 by World Scientific Publishing Co.

Dilip Roy at Itsun Heavy IndustriesIndia Pvt. Ltd. (IHIIPL)a

On a hot summer morning in 2005 in Delhi, India, DilipRoy evaluated whether he should stay in his job as CountryHead of Itsun Heavy Industries India Pvt. Ltd. (IHIIPL) orquit. Would he have joined IHIIPL in the first place in 2003if he knew what was in store for him, he wondered. He wasdriving home and had just seen the email alert announcingthat he was selected as one of the 30 recipients of theCertificate of Honor issued from the China headquarters.They never communicated directly with me before, hecommented wryly later.

When Dilip was offered the position at IHIIPL, hethought it had been the embodiment of all his expectations.IHIIPL was a wholly owned subsidiary and a startup ofItsun China (IC), a construction equipment manufacturingcompany. In India, IHIIPL was to start as the trading andequipment support arm of the Chinese parent. Hu Jian, theChinese representative of IC and an interface with Dilip,had brought back approval for almost everything he askedfor the designation, money, and autonomy. But as Dilipstarted working, he realized that this was a tough ordeal inhis otherwise successful career as he liked to call it. In thelast two years since Dilip joined IHIIPL, Hu had been fired,Dilips autonomy was severely limited and he felt more andmore humiliated in a series of events, though his earnings

aThe author gratefully acknowledges the support and comments from Prof. M. R.

Dixit (IIM Ahmedabad), Prof. S. Manikutty (IIM Ahmedabad), Prof. Lau Geok Theng

(ACRJ), the anonymous reviewers of this case as well as the protagonist of this case

study whose name is changed along with several other identities.


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were his lifetimes high and the performance of IHIIPL hadzoomed. The announcement of the Certificate of Honorinformed him that he and his wife would attend a galaceremony at the headquarters in China, whereupon he willreceive a cash prize and a certificate by the Chairman. Thisnews sent Dilip into a journey through his time at IHIIPL.

DILIP ROY

Dilip Roy

47, married and father of two daughters

19 and 13; was born and brought up in Delhi, India. Arecipient of the National Science Talent Search Scholarship,he graduated with honors in Mechanical Engineeringfrom Delhi College of Engineering. He started his careeras a Graduate Trainee Engineer (GTE) at the Marketing(Construction Equipment) department of Larson and Toubro(L&T), a highly respected Engineering and Constructioncompany in India. L&T enjoyed a virtual monopoly inthe controlled economy of India and Dilip soon realizedthat there was little marketing effort required. He disliked

routine and predictable work and hence took up difficult,unsolved, problematic cases pending with his department.In 1995, after 23 years of working with several ConstructionEquipment companies in India, changing for better prospectsand twice fired due to conflict with top managers, Dilip hadbecome a VP (Sales and Marketing) at Indian InfrastructureEquipment Ltd. (IIEL), an Indo-American joint venture.The industry circles knew him as an aggressive problemsolver, a person with an eye for detail and highly skilledin equipment service, parts management, organization of

project task force, and effective off-site project control.

ITSUN CHINA (IC) EXPLORING THE INDIAN MARKET

Sales at IC had been growing at an average rate of 50% eachyear since its establishment in 1988. This made it Chinaslargest construction equipment manufacturing company inthe private sector. This growth had mainly been caused by


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DILIP ROY AT ITSUN HEAVY INDUSTRIES INDIA PVT. LTD. (IHIIPL) 235

war-like pace of construction ahead of the 2008 Olympics.IC has products for machinery building, road building, andhoist machinery. Its products fit into eight categories withmore than 50 kinds of specifications.

At the time of creation, IC found that all itscompetitors were foreign companies. Choosing to build adomestic brand, IC has been consistently investing 5% ofits turnover each year for R&D. Through its offices in thewestern world, IC keeps itself updated of the developmentin technology and at the same time through operations

in Asia it keeps its own manufacturing costs down. Ourinvestment on technical research and development hasachieved double-digit growth in recent years, says itsManaging Director. IC now has more than one hundredauthorized patents and many key technologies.

By now, IC has established itself as a competitive,quality producer of construction equipment and itsconcreting equipment especially enjoys a market share of70% in the home market. (Annex 1: IC Profile)

Post 2000, however, the construction activity faceda slow-down in China as major deals for the construction

projects were already frozen. Additionally, the governmenthad decided to slow down the overheated economy bycontrolling the growth of chosen sectors, so the number oflarge construction projects was under tighter regulation.Hence, the IC top management headed by Mr. Wei, theChairman, decided to explore the overseas market. Weiwas attracted by the prospects in India an emergingmarket with liberalized market economy and a boomingconstruction industry piggybacking the infrastructuredevelopment throughout the country.

Wei decided to send Hu, his nephew to lay thegroundwork for ICs operation in India. Hu spent one yearbetween 2001 and 2002, studying India, specifically theIndian construction industry and gathering intelligence onthe potential clients in India.

During the exploration, Hu once visited IndianInfrastructure Equipment Ltd. (IIEL), the Indo-American

joint venture. Hus objective was to promote IC equipmentto the president and the major decision maker Mr. Paul at


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IIEL and see how his line of Quipo equipment could becomplemented by IC products in the field. Paul asked Hu todiscuss technical matters with Dilip Roy, his VP (Sales andMarketing). Hu and Dilip immediately found themselvesimmersed in discussing various technical issues threadbare.Encouraged by Dilips depth of knowledge and vastexperience, Hu raised many more questions. He even askedDilip to compare and contrast IC equipment with availableIndian options, or his comments on the prospect of settingup Itsun operations in India, the Indian market and its

characteristics. Dilip and Hu decided to meet once again.Two days later in July 2002, Dilip was asked by Hu ifhe would consider joining Itsun as its future country head.IC at that time only had a liaison office in Bombay and theIndian company has yet to be incorporated.

ITSUN HEAVY INDUSTRY INDIA PVT. LTD. (IHIIPL)

Dilip was very excited about the new offer, now that hefaced the prospect of heading a companys operation for the

first time.Dilip was required to obtain the incorporation of the

company as a Rental Business Operator with the RegistrarOf Companies (ROC) in India. At that time the Ministry OfFinance (MOF) that regulated the company affairs, did nothave a specific category Rental Equipment and the case ofIHIIPL was being considered as leasing (financial) businessbecause of the similarity between the two.

Since Hu had been trying in Mumbai through hisconsultants and had not yet got any headway, Dilip decided

to register the company with the ROC office in Delhi wherehe was stationed, with the help of different consultants.This idea was accepted by Hu, who made a commitmentthat upon the receipt of registration papers, Dilips job asCountry Head will start.

Dilip, now describing the Indian business environ-ment, the liberalization process in India, and the operationalaspects of the proposed business; suggested to Hu thatIC float IHIIPL as its 100% owned subsidiary with initial


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activity of renting construction equipment. According toDilip, this move would offer a viable alternative to thebuilders and contractors, who were fed up of existing rentalsolutions, but were averse to investing serious money infully owned line of construction equipment, let alone aChinese product. Additionally, machines on rental will bemaintained by Itsun, who could demonstrate various well-running machines and their maintenance management to theprospective clients, too.

This suggestion immediately appealed to IC officials

and in October 2002, they asked Dilip what salary expec-tations he had from IC. Dilip was then drawing RupeesTwelve Lakhsb per annum, and considering a 20% bonus,asked for fourteen and a half Lakhs as the expectedannual salary at IHIIPL. Waiting period followed and inDecember 2002 Hu told Dilip that people in China found hisexpectation too high. Dilip felt disappointed that so muchof involvement from his end had not led to any concretedevelopment. However, after three months in March2003, he again heard from Hu that IC had agreed to giveDilip his expected salary provided Dilip looked after the

incorporation of Itsun India and took care of the business,while the Chinese representatives would communicate withIC (refer to Annex 2 Itsun India when Dilip joined and atthe end of 2004). Dilip agreed. Hu and Dilip together draftedDilips letter of appointment and printed it, and within 20days Dilip obtained the necessary approval and documentsfrom MOF in order to register the company.

INDIAN CONSTRUCTION EQUIPMENT INDUSTRY

The Indian construction equipment industry at that time wasdivided into two segments:

a. Equipment manufacturing companies engaged in sellingand after sales support to construction companies directlyor through their dealers.

bOne Million = 10 Lakhs.


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b. Equipment hiring companies buying from (a) above, andhiring the equipment to construction companies.

The equipment rental business in its present form,suffered from the following shortcomings:

1. In the absence of any national player, constructioncompanies had to choose a new set of hirers at everyproject location. Multiple contractors greatly increasedmanagement burden of construction companies andquality and time schedules of project suffered.

2. Construction companies could not take advantage ofgood rental companies in another project in a far awaydifferent location as the local hirer did not want to movebeyond 200 km or so.

3. Unethical practices were not acceptable especially to thecompanies of foreign origin.

4. Construction companies were inconvenienced during themid-project to look for a fresh hirer, as often the existinghirer was unable to repair equipment in time due to fundshortage. This affected the project schedule and resultedin cost overruns.

5. Project staff often complained that they could haveperformed much better had the equipment being ownedby them rather than hiring from unprofessionally runshops.

A clear gap in the industry existed for a professionallymanaged and nationally spread player with sound financialbackground as Dilip understood the industry through hisexperience with construction equipment selling and rentalactivity. Construction equipment manufacturing companieswith their nationwide operations and in-house service and

parts management, though thought to be best suited for thisjob, were very reluctant to enter this business because:

1. Hiring and managing equipment operators and helperswas a tedious task (each machine requires at least foursuch persons). Moreover, executive staff dedicated torunning rental business was also in short supply.

2. Moving equipment across state borders was a hugechallenge. Having correct registration and identification


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papers were no guarantee of smooth movement ofequipment.

3. Misuse of the equipment by construction companieswas another major concern. Hired equipment wasgenerally used in worst applications whereas constructioncompanies deployed their own equipment in easierapplications. More often the hire charges were notreflective of the deployed job requirements.

4. Construction equipment manufacturers were keener onupgrading their manufacturing facilities and updating

their products. If funds were available, capital intensiverental business was not their priority.5. Safety of equipment on site, proper on-site running and

maintenance were also major issues which equipmentmanufacturing companies were not comfortable with.

6. Smaller rental companies pulled hire prices down andfearing their larger overhead, equipment manufac-turing companies were not sure of desired return oninvestment.

Equipment Manufacturing Companies

A number of world-famous equipment manufacturing com-panies (EMC) with their facilities are present in India:

1. Caterpillar, USA2. Komatsu, Japan (partner

L&T)3. Hitachi, Japan (partner

TELCO)4. Volvo, Sweden

5. Atlas Copco, Sweden6. Schwing Stetter, Germany7. Putzmeister, Germany

8. Greaves Limited, India(JVs)

9. Terex, USA10. JCB, UK11. Tatra, Czech Republic12. Ingersoll Rand, Sweden

13. BEML, India14. Sandvik, Sweden15. Metso, Australia

There are various other smaller and lesser knownmanufacturers qualifying as EMC, but the above mentionedcompanies are known as the large and reputed constructionequipment manufacturers.


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THE CONSTRUCTION EQUIPMENT RENTALACTIVITY IN INDIA

Liberalization of the Indian economy was profoundlychanging the face of the construction industry in India,and with it the rental business for construction equipment.The construction equipment rental industry so far wascharacterized by sole proprietary form of ownership, smallsize, limited geographic coverage by the firms, and absenceof professional management of business. As the liberalized

economy grew faster, construction activity picked upmomentum. Foreign firms were allowed to participate inthe now increasing number of mega projects exceedingRs.200 crores in value. The developments were constantlycontracting the time frame for project execution apart fromemergence of quality benchmarks that were matching thebest in the world.

Such shifts drove the Indian bidders orientationfrom manual to automated work at the construction siteswith increase replacement of manual mode. A trend of 70%owned equipment and 30% hired equipment emerged. The

equipment rental companies basically bought equipmentfrom the manufacturers and hired them out. Annex 3 showsthe growth of construction equipment rental industry.

DILIP AT IHIIPL A TIMELINE

Dilip had got everything he wanted in the form of offer fromIC the top position at an international firm, nationwideplaying field, and an industry that gave him all the scope tofulfill his need for achievement and non-routine work. He

could now work autonomously at the salary he named. On15 April 2003, he joined Itsun on a very positive note.

The Teething Troubles Are Tackled by Dilip

Dilip had worked in the equipment rental business in hisprevious jobs, and he immediately set about garneringbusiness. Within four months, Dilip had incorporated


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IHIIPL, located an office, hired an accountant, and deployedthe first 11 machines received from IC as rental machines.Most of his current site staff had moved from his previousorganizations to join IHIIPL.

IHIIPL in the pre-incorporation time had Hu operatingout of the Mumbai liaison office where he had employedVishwas, who printed his business cards announcingManager India. Hu being totally focused on marketingand customer relationship had not really worked on issuesconcerning general management, norms, and hierarchy.

Additionally, Hu had not explained to Vishwas that he wasto report to Dilip, the Country Head. Vishwas continued toact autonomously and often at cross-purposes with Dilipsplans. Dilip could not understand how such problems couldarise when he had clearly been appointed to run the Indianbusiness as a Country Head and why did Hu not giveany clear instructions to Vishwas ahead of Dilips joining.Dilip followed up on this issue several times with Hu totell Vishwas to work under Dilip and follow the businessplan. Hu relented after several incidents and Vishwas camearound. Dilip brushed this issue aside and focused his

efforts on work.He needed catalogues, spare parts, and technical

literature from HQ and wondered how he was to get bywithout those and transact business. He made severalattempts to contact IC for the supply of these items,but received no reply. Without catalogues it was nearlyimpossible to make any impact on clients and shoddyphotocopies presented a poor picture of the organization.He commissioned one of his friends, a graphic designer andhad the catalogues printed. At this stage, he sensed that

he was relying on his personal relationships and networkincreasingly for getting his work done.In June 2003, early one morning two good-looking

Chinese girls in their early 20s arrived, unannounced.Hu told Dilip that as per IC directive Mu was going to becashier and Xiang the finance head. Within 15 days it wasclear that both had no relevant qualification or experience.The work of the Chartered Accountant (CA) in theaccounting and finance area badly required a functioning


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assistant, whom Dilip could not employ as according toIC there were already three persons in that department.

After two months the frustrated CA left. Dilip employed a

new CA with explicit caution that he had to bear with the

Chinese staff without complaints.

At the end of the first six months of operation at

IHIIPL, rental revenue of Rs.20 Lacs was generated, which

Dilip remitted to HQ against the equipment imported from

IC. The following week Hu told him that five Motor Graders

were arriving at the Bombay port and IC was not sending

any money toward custom duty payment. IHIIPL did nothave Rs.55 Lacs, in just four months of operation, due as

duty. Dilip had been a VP (Finance) with a leading Non

Banking Finance Company five years ago. He contacted a

couple of his ex-colleagues in the equipment finance channel

and raised Rs.55 Lacs just in time for payment to customs.

But he was very upset why IC could not convey such

important news to him well in advance.

One of the IC products, Motor Graders, required

frequent replacement of the wearing parts that were heavy

and uneconomical to order by air. Dilip had been telling

Hu to ask IC to ship these by any container loaded with

equipment for IHIIPL, as there was ample space around

the equipment inside the container and the freight charges

remained unchanged. This would have been the best way

to get the bulky and heavy wearing parts from China free

of freight charges. Months passed and the customers

complaints mounted as parts failed to arrive. Initially,

Dilip simply got the wearing parts welded and managed

the situation. Getting no answer and help from IC, he

commissioned one of his known suppliers to fabricate those

items locally and within a month had sufficient inventoryof spares at a price lower than IC for comparable quality.

For other parts I and my Indian engineers located sources

and over a short period we were nearly independent of IC,

Dilip recalled. But how IC never wondered about the lack

of need of any spare part in India continued to baffle me a

lot. He wished to pick up the phone and talk to someone

in IC, but the language barrier stopped him. At least the


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situation was manageable and he could satisfy his clients.More importantly, the business was picking up and now hebegan to receive sales inquiries.

In August 2003, Yong, the International Sales Managerof IC visited India for three days. Dilip had worked veryhard on his presentation to Yong, and was keen to discusshis detailed notes on issues hampering smooth operationin India. After breakfast, however, Yong announced that hewas off to Goa, and would talk to him later. Dilip never sawhim after that. He was left wondering whether these people

were really interested in resolving issues that hampered thegrowth of business in India.In September 2003, Hu drew Rs.15 Lacs from IHIIPL.

This created unexpected fund shortage disrupting EMI tothe Kotak Bank from whom IHIIPL borrowed money topay import duty. In order to avoid the cheque bouncingback, Dilip put in his own Rs.8 Lacs as Hu simply did notrefund the money. Of course, Dilip recovered his moneynext month, but decided not to pledge his money again. Hewondered if anyone at IC was even aware of this and othermajor issues that bothered Dilip.

The rental business had picked up in full speedby now. Of the two equipment introduced, the ConcretePumps proved to be a roaring success but the Gradershad more than their fair share of problems. Dilip managedGrader problems by localizing the spare requirement andhis major Rentals clients were contemplating purchase fortheir next projects. By the end of 2004, Itsun as a brandname became known to clients who mattered and Dilipwas looking forward to shifting gears in 2005 from being apredominantly Rental company to equipment seller status.

(Annex 3: Pump sales in units and revenues at IHIIPL)

Dilip is Joined by Lei

In December 2004, Lei and his wife Yu Wan walked into hisoffice at 8 pm straight from the airport. Yu Wan spoke in animperious tone heard by everybody that her uncle was theowner of the company and now her husband was the boss.


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She advised everybody sternly to spend less, earn morerevenue for the company, and work 24 hours a day.

Lei immediately set about taking out all the pastrecords of expense made and spent a week with his wifeporing over all vouchers. A week later Dilip was called andgrilled insolently on small matters. While he was explainingreasons for the expense, Yu Wan told him angrily that sheknew that Indians were taking a minimum of 10% kickbackson all transactions. Dilip left the discussion by saying thatthey could take charge of purchasing to compare the prices

they could get from the suppliers and check with suppliersif 10% kickbacks were possible.He was now thinking that his company had given

him a very different impression in the beginning. As anemployee he had to face the ground reality now; whetherpalatable or not.

In the meantime, news started filtering from IC grape-vine that Hu had misappropriated a lot of money from ICDollar account, sold spare parts in cash after showing themas warranty replacement, and was being fired after theassessment of pilferage was complete. Consequent to that

three separate audits of IHIIPL account were carried out. ToDilip it appeared as if they were his personal audits as hewas requested to remain available at all times for 10 daysto answer queries. After hundreds of questions on minutedetailing of business operations conducted by Dilip till now,no irregularities were found. The Leis did briefly appearembarrassed for their suspicious attitude towards Dilip, butDilip felt deeply discomforted. The Leis now terminatedthe auditor on the grounds of his suspected cover-up onmalpractices. A new auditor was hired, but Dilip was not

involved at any stage in the recruitment.A typical feature of rental equipment business is thatconstruction companies resort to hiring for short durationsand to meet peak load requirement. Thus, the equipment isshifted every six months or so, and transportation occupiesthe largest expense in rental business. Especially, the MotorGrader transport is an expensive one as it requires flat bed40 feet trailer and one way transportation can cost anywherebetween Rs.60 to 90 thousand. The Leis now suspected


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malpractices in dealings with the two transporters usedfor the last two years. The Leis asked the transporters toreveal malpractices in their dealings with IHIIPL or facecancellation of their contracts. The transporters deniedany malpractice whatsoever, and opted for canceling theircontracts instead. The Leis did cancel their contracts, butwere forced to reinstate them after three months, as theycould not get the same terms, rates, and service for the givenvolume of business with IHIIPL.

The transport activity had barely returned to normalcy

and Kotak Bank informed Dilip that the EMI chequehad bounced. When Akash, the CA could not explain itsatisfactorily, Dilip warned him that if it happened again,he would have no option but to fire him. At this, the Leisimmediately countered Dilip and told Akash, that nobodycould fire him without their permission, and that fromthen on he was not reporting to Dilip. A few days later oneChinese privately told Dilip that Akash had been promisedan increase in salary and promotion if he could reveal anymisappropriation that the Leis were looking for.

By March end, no malpractices were found within

IHIIPL, and the Leis now turned to interrogate the suppliers.Some suppliers stopped transacting business with IHIIPLclaiming unprofessional behavior and unacceptable attitudeof the Leis.

The new financial year 2005 had started and the brandname was reasonably established and products accepted byIndian clientele. Then I was told that the direct sales andmarketing will be an overall responsibility of Lei. I wasextremely surprised to hear that and then Lei explainedthat Hu had reported to IC that I was looking after only

rental business and all sales were the fruit of Hus effortonly. When I countered that claim, Lei told me to give alist of equipment I had sold by so that instead of givingcommission on sales to Hu, IC could pass that money to me.But I never got the commission. At that moment it struckme that money had been the only consistently good thinghere I was making much more than my counterparts inthe industry. Despite all the cacophony, it seemed a goodenough reason to stay at IHIIPL. I needed the money badly,


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my daughter was studying Engineering (Rs.2.7 Lacs/year),and I was making a house of which a housing loan of Rs.30Lacs was outstanding.

In the beginning of 2004, IHIIPL was fourth in rankingin concrete equipment and had become number two withina year. Dilip had sold machines worth US$6 million, whichwas more than was expected. IHIIPL had more MotorsGraders in the field than any other more famous suppliers.In spite of the shortage of inventory and service personnel,Dilip had managed to keep the show going.

Dilip compiled the financial performance result oflast year and PBIDT (Profit Before Interest, Depreciationand Tax) and presented to Lei to demand his bonus of fivemonths basic salary amounting to Rs.3 Lacs, as per the termsof employment. After waiting for one month for bonus andno talk of increment in salary, Dilip wrote his resignationletter, put it on Leis table, and went home. Three days later,he received a call from the office that his cheque was ready.He collected his cheque and resumed work, but made noattempt to recover his resignation letter. Tickets for two toattend the grand ceremony of awarding the certificates of

honor to all the 30 awardees by the Chairman himself, at theheadquarters, were lying on his table, but he had decidedto open the couriered letter after he returned from hisinterview with a German company that intended to enterthe market next year.


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Annex 1. Itsun China: A Brief Profile*

Full Name: Itsun Heavy Industry Limited (known inthe industry circle as Itsun China)

Year of Establishment: 1988

Registered office: Wuxi, China

Spread of operations: China, India, Thailand

Activity: Manufacturing and selling of constructionequipment

Products: Concrete pumps, rollers, excavators, Motor

Graders, Pavers, Placing Booms, Mixersand equipment for batching plants amongothers

Turnover: % Growth in last five years

Assets: US$613 million in June 2005

Employee Strength: over 5000

Distinction: In 2003, the company was ranked among the China2003 Top 50 Operation Performance Corporations with mainbusiness income up 112.08% year-on-year; net profit up 54.77% oversame period of the year before last.

*Profile details have been altered in order to protect the idenity of the company.


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Annex 2. Itsun India

(a) When Dilip joined

(b) Itsun India by the end of 2004

Hu Dilip, Country Head

Vishwas, Manager India

Itsun China

Dilip Roy, Country Head Hu, Regional Manager

Sales Manager, Mumbai Dealer North Delhi Accounts Officer Managers, Various

Sites

Annex 3

Year Schwing Greaves Putz CMC

2004 300 100 50 10

2005 350 120 100 135

(A) Pump Sale in India (Unit Sale)

(B) Revenue at IHIIPL

Year 200304 200405 200506

(Amt Rs.) (Amt Rs.) (Amt Rs.)

Sales 4,645,191 20,343,071 124,519,972

Rental 13,042,614 24,748,337 31,749,728Other income 247,000 972,568 15,529,310

17,934,805 46,063,976 171,799,010

Pumps constitute a major source of revenue for IHIIPL.Other income excludes commission on business which goes to CMC directly for

payment through LC. This does not reflect in IHIIPL books as turnover.


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dilip case

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