Stronger Indo-UK trade ties crucial to ease Brexit woes: Reckitt

Q: You are here with Theresa May as part of her first trade delegation to India. This is her first bilateral visit outside of the European Union (EU). There is a lot of uncertainty on how Brexit is finally going to impact business. What is it going to make for immigration? What is it going to be for passport rights and so forth? And I do not think anyone has the answers here. How is that impacting consumer confidence and business confidence specifically?

A: You raised some valid questions about what might happen in post Brexit environment assuming everything goes as people think it will, which is the UK will exit the EU. I think in that environment it is very important for UK to find stability in terms of its economic relationship in terms of its trade relationships and when you think about that India becomes a very natural partner for trade. We have historic ties of course; we have shared values of democracy and stuff like that.

India happens to be one of the biggest investors in the UK and UK is one of the biggest investors in India, one of the top investors in G20. So given all that it is extraordinarily important that UK and India find a way of trading even strongly, more strongly than ever before, when UK's position in EU becomes less certain. Therefore, all the issues that have been somehow in the mix on visas, on free travel of our professional people, on jobs etc, have to be resolved.

I do not think we have concrete solutions which will make the Indians happy for example, but Theresa May has indicated that she is going to find a way of making it work, in fact we have made an announcement which says that frequent travellers from the UK, business travellers from the UK will find it easier to gain entry and access. You don't have to wait in the immigration queues for a very long and make it much simpler.

However, this is just a first step and we will necessarily have to find a way of making the movement of people particularly from India more amenable so this niggle goes away into a stronger partnership in the future.Q: Specifically from a business point of view and you have got global operations and you have said in the past that the impact of Brexit is probably going to be less tangible for businesses like yours, but what would the immediate concerns be, currency volatility, of course is the big one but outside of that. How are you bracing yourself for a post Brexit world?

A: To be very fair from a consumer point of view, the Brexit world is likely to have an impact actually mostly in the UK and that is mostly going to be for all those companies which import a lot of stuff from outside the UK. They will have to find a way of putting prices up or actually taking the hit in margin.

Q: But retailers are already saying we cannot take it on?

A: Retailers will always tell you the same thing. I do not think retailers are very happy to absorb price increases and neither should consumers want to. So companies like ours will have to find a way of either passing on some price increases to the consumer, which is never a good thing or find a way, this is more important, or find a way of innovating in a way that provides better value for people even if it is a slightly higher price but overall value proposition still stacks up.

Q: But that is still in the long-term. The innovation aspect of it in trying to premiumise further your premium products so that you can continue to exercise some price control but in the immediate term we have already seen the likes of Tesco etc, come out in open and say that this is not something that we can cope with. What can we expect in terms of margin pressure for instance?

A: First of all, rather than commenting on so-caller Marmite-gate in the UK, which took a lot of headlines particularly as a showpiece of what Brexit could mean for people. I think you have also seen already evidence of consumers being passed on those price increases by the same companies that have actually got embroiled with price increase situation. Price increases will happen. My wife shops dot com and she tells me that she is paying 30-40 percent more for the same products that she did before Brexit. So we already see price increases in our own home but as I said just trade price increase, sometimes, is not a good way of telling people that you have to suck it up. I think companies have a challenge to innovate; companies have challenge to provide better value and even if it takes some time - that is the real ask.

The real ask is not to tell people that bad luck, you are in a post Brexit world, take these price increases and suck it up. I think the good way of doing it is acknowledge that consumers will face pressure of increased pricing while wages do not really go up and therefore companies like us have responsibility to do some better jobs in terms of innovating this also.

Q: What does this mean? I mean you are holding on to your guidance at the lower end of 4 percent, given the fact that the developed markets continue to see absolutely no growth. It is flat. Growth is coming in from markets like China and India and then you have Brexit uncertainty and how that plays out in the UK. Is there a downside risk now to the guidance that you held out?

A: First of all, we have made a guidance that we will come in at the lower end of 4-5 percent for the year as a whole. Year-to-date, which is the first nine months, we were at 4 percent, so I think at this point in time we continue with that guidance.

I think we are living in a world where growth rates are no longer even, not just in developed markets where of course growth has been challenged for a long time but also in emerging markets. All emerging markets are not growing well. We know that Brazil and Russia and even parts of Africa, parts of Middle East like Turkey, for any number of reasons and sometimes quite varied, are under pressure. So we have to actually focus very hard on markets where we know the underlying demographics, the underlying case for growth is very strong like China and India are two huge markets and China and India are not just two any markets. China, India constitutes USD 1.3 billion in one case and USD 1.4-1.5 billion in another case. There is really 40-50 percent of the total global population.

I think these are fantastic markets and Reckitt Benckiser (RB) has just started. We are still young in our growth profile in these markets. So we are very excited about growth in these markets. Having said that I also believe that every company, no matter how big or small it is in emerging markets or conversely how big or small it is in developed markets, has to find a way of growing everywhere because it is not okay for a company to rely only on India or China or markets like that to grief all its growth. We have to find growth everywhere. And RB's history over the last five years has been to be able to find growth everywhere. So in the first nine months of the year, developed markets grew by 2 percent. Is that fantastic? No it is not fantastic, but 2 percent is a lot better than every other company that probably operates in our markets. So we are growing everywhere but we have to single-mindedly focus on those markets which we know offer long-term potential for growth and India is certainly one of the top of the list.

Q: What will that then translate into in terms of innovation in India in terms of new product launches, in terms of new categories that you might want to get into, in terms of possible merger and acquisition (M&A) in India. What is all of this going to translate into for your India strategy?

A: First of all when you think about all these things you have to always say all of the above. In India we cannot rely on one vector, one access of growth, for example in India we are thinking about innovation just for India. When I say just for India, it doesn't mean we will not do it anywhere but we will start with India and focus on India.....

Q: ....use India as an incubator to perhaps then export the stuffs to other markets like India.

A: Of course, but we will start with India. Those days of saying we are going to bring to India what works everywhere else, are gone. We have to start with India because India itself is such a huge market where if we can find a great innovation that works, forms a critical mass for innovation.

I will give you two examples, Harpic, it has stood very long for fantastic toilet cleaning product but we also know that in Indian toilets there is a continuum between toilets and bathrooms and where a toilet finishes and where the bathroom starts is always a line of gray, so we launched Harpic bathroom cleaner and it is an India only product and it has done so well that we are now thinking about taking it to other markets where the same kind of consumer conditions exists.

The second example is hand washing. We know that people normally wash hands with soap, a bar soap rather than a liquid hand wash and part of the reason is that the price points of a liquid hand wash are much higher than a bar of soap. So our idea was to give them a liquid hand wash at a price of a bar soap which is why we launched Dettol Squeezy and that has done extraordinarily well too. So that is one access.

The other access is that we got to think about extending our brands into new categories or new segments, an example of Harpic bathroom again comes to mind but Dettol could potentially go into new segments. I know air quality is a problem in Delhi. So what can Dettol do to solve some of the challenges that we all face of having to live in rough air environment and therefore, we are launching a Dettol masks. Right now it's an online launch but we are going to keep thinking about how we help consumers live a clean and healthy life.

Third, you touched on M&A. However, I do not want to comment specifically on M&A but we would continuously look out for opportunities in M&A. As about few years ago we bought Paras Healthcare, which gave us move to D Cold, Krack Cream and number of brands.

Q: Anything exciting on the radar?

A: In India there are a lot of exciting opportunities, valuations are also exciting and quite racy. So you got to look at whether you can create value for M&A, not just do M&A for the sake of doing M&A. So we are going to look at all opportunities of growth but I have to reemphasize organic growth offers a fantastic long-term potential for us anyway. We have huge number of brands which are on the path of great growth._PAGEBREAK_Q: I want to talk to you about an issue which is sensitive issue and of course it impacts your business performance as well but it impacts much more than that, it impacts the brand itself. What have been the lessons that you have learned from the experience in Korea which has been a tragic experience, business there virtually has come to a standstill, you have provisioned for compensation but the business impact is the small matter. The larger matter is the impact on the brand. How do you cope with that?

A: We have a 200 year history, a lot of people forget that, we have been in operation for 200 years and in 200 years this is one of the most difficult cases for us. This is a product which RB acquired from a local company in 2000, and before we acquired the company the product was already there. It was a small product, local product being sold locally in a market which had 16 other people selling it, so there were lots of people selling it.

In our years of acquisition, 10-11 years since we acquired the product, we never ever change the formulation. It was such a small product, nobody looked at it properly, one of those very small local brands. And 11 years later we found out that it created such a huge amount of tragedy with consumers.

I think the first lesson is companies like us have to take responsibility even if we are amongst many other companies involved. So I have to say that despite the tragedy that created, and I am sorry to have been in the company which has created this tragedy, our company has taken responsibility for it. We are the only company which has gone and announced a compensation for all the victims and all the patients, not just for their current condition but also for their mutual medical care.

We have installed a completely transparent process. We are now disclosing all the product ingredients, the entire list to make sure that people know what they are buying and what the products contain. So there is a huge level of transparency that we have started in this company, so that consumers who have a right to know what products they are buying and what they have. Get to know that.

The third thing we have done is we have very dramatically enhanced the safety quality and compliance. The management in the company have appointed a Global Chief, Safety Quality Compliance Officer reporting directly to me. Strengthened the processes, strengthen the system; strengthen the organisation to ensure that something like this can never happen again.

Companies like ours can always face the crisis some times which we do not want to have or we don't want to see. The important thing is how we learn from this; how we stand up to it and how do we actually become a much better company from here. If there is one silver lining from this very terrible tragedy. It is that this company will become a better company. It will become a company which will become more responsible and in the world we live in today, to become a great company, you have to be a good company and we want to be a company, so that we can become a great company and  that is what this terrible tragedy will help us become.

Q: As you rightly said you are not the only one and I am not talking only about this specific instance. There have been instances in the recent past which involve other global companies as well. What is the answer to this? You are talking about more self regulation, of course you have to deal with regulators but you are talking about improving or beefing up internal security checks and balances etc, what is the answer to get in companies to behave more responsibly?

A: The fact of the matter is - I will come back to the thing - in this particular tragedy also the real sad truth is that we were in compliance with the local regulation. So this was where the government for example, failed it own consumers.

I think one of the biggest lessons also for global companies is that we cannot rely only on local regulation or regulation to make a safer, better and compliant, whatever that means. I think we have to have our own standards of safety and quality.

Q: Because that has been criticism of global companies that you use markets like India or the less developed markets to push products that you wouldn't necessarily sell in developed markets because they might very well be in compliant with the local laws but not with the global?

A: Absolutely and this is something we do not want to do. We want to have a standard that is true and which works for safety and quality for people in Europe as it does in Bangladesh or in India or anywhere else in the world. So, global companies - because one of the other lessons of this tragedy is - and not just for us but every other companies, in the past you could bury it in the local country or even the local city. These days everything is global. What is happening in one part of the world is available to everyone everywhere else. So we are not longer sitting in a world where you can hide and cover problems up. Companies have to show a level of transparency and responsibility because in the world we live in today -- in the past employees worked for companies, today companies have to work for employees.

Companies have to show a level of responsibility, a level of transparency, a level of behaviour which needs to stack up with what the ordinary person is expecting from companies. If we do not do that, we will lose our legitimacy, we will lose our right to lead, we will lose our right to do business and this is a big lesson for companies like mine and every other company, to earn the right of trust of people, of society, of our own employees. We have to create a standard which is well beyond the standard required by law, by regulation and live up to that style and that is what we are trying to create in RB.

Q: Let me end by asking you about something interesting that you are working on here in India and that is the launch of the hygiene index. So it is pretty much like the government is proactively pushing the state governments to improve the ease of doing business. The objective, I believe, with the hygiene index is pretty much the same, is to get states to do better on the hygiene front. Take us through how you intend to go about this?

A: The primary hypothesis here is that if we measure output versus outcomes then we are going to measure the wrong thing, for example this whole country is galvanised. I have never seen more euphoria, more excitement about building more toilets, but you and I know that building more toilets is like pushing supply without creating demand and if you just push supply and not create the demand, what is going to happen - these toilets are not going to be used, these toilets are not going to be cleaned, these toilets are not going to be looked after and therefore we do not get the behaviour change that we are looking for.

Companies like mine, understand that. We understand that we have to create the demand. We have to create not just the supply but the demand and therefore what we are trying to do is find a measurable index through which we can say where we have actually done the holistic job of creating the demand and supply. Therefore, we are making real change happen. The hygiene index is about measuring real change and once we measure real change like I would do in every other business, I run a large business and my job is to find out which is the best return for my investment. So, the hygiene index then does one simple thing, it measures city by city, state by state a score card and depending upon that score card we will invest in a particular state because that is where I get the best return on my investment. So it creates a healthy spirit of competition, it creates a mechanism for resource allocation; it creates a benchmark for people to see how well we are doing. Therefore, without having that kind of outcome based metric, I think all the effort that we are going to do just now might just not yield the return that we are looking for.

However, I think Swachh Bharat which is also Swasth Bharat is the single greatest change programme that this country has and this is the reason why RB, Dettol and Harpic are fantastically behind this programme.

Q: You have put in a significant amount of money, Rs 100 crore into Swachh Bharat campaign that you are driving along with the government but it is linked to your core business strategy. So in a sense to put it mildly, its enlightened self interest, isn't it?

A: In life we all think we have to make trade off. How can we do more for society and worry less about profit or worry more about profit and worry less about society? It sounds like a trade off. There are not many instances in life where you see no trade off, where something you are doing is good for society and good for company and if we start thinking about no trade off. It is a good thing. It's the best you can have.

So our company purpose is about healthier life happier home. The purpose of this country is about Swachh Bharat, Swasth Bharat, Cleaner India and Healthier India. I see no contradiction between what the company is trying to do and what the country is trying to do. Therefore, every investment we can make to make Clean India happen is good for India. Will it be good for my business? Potentially. Will it be immediately good for my business? I do not know. Will it be good for my business in five-ten years from now? I think so and I am happy about that. We are not ashamed about this. I think there is no contradiction. There is no trade off and when there is no trade off it is a win-win. It is fantastic for everybody.