How L N Mittal built his steel empire

Business India, May 10-23, 2004

Sultan of Steel

Lakshmi Mittal’s juggernaut rolls round the world building the most globalised steel MNC

Shivanand Kanavi

Last week a handful in India received a gold-embossed envelope from Summer Palace, Bishops Avenue, London. If the recipients surmised that it carried a summons from the British royalty, they were not quite correct. It was from a modern-day empire-builder, Lakshmi Mittal, better known as LN in India.

After jetting around the world in his Gulfstream IV, acquiring steel mills and iron ore mines, rolling mills, and coke ovens in Algeria, South Africa, Romania, the Czech Republic, Poland, Serbia, Macedonia, and so on, is Mittal inviting people for a coronation of sorts? Is the latest acquisition of a £70-million house at Kensington, next to the royals, a sign?

Perish the thought. Nothing so megalomaniacal for this very down to-earth steel magnate. A doting father, he was sending pre-invites for his daughter’s wedding this summer.
If a number of wannabes are disappointed at not receiving the letter, his own exuberance is only constrained by the size of the venue in Paris.

Despite being a hardworking and bottomline-driven businessman to the core, the family is his soft spot. He has groomed his son Aditya, 28, as an intelligent partner in building the most globalised steel company in the world. His executives, many of whom are former S A I L engineers, swear by his quick decision-making, tight control, and the management style of a benevolent patriarch.

Steel analysts round the world are going gaga at his juggernaut that has rolled insatiably through the downturn and the upturn and grown from 19 million tonnes in capacity in 2001 to 43 Mt in early 2004. However, his style and value systems are not unusual for a first-generation entrepreneur building a family-owned business in India. His distinction is that he has chosen the tough world of global steel as his playground, totally focused on it, and single-mindedly acquired an enviable group of assets round the globe. He has knitted these disparate assets together into a global and unusually nimble organisation, a creature never seen before in a flabby industry that was essentially national and inherently inert.

He might appear with boring repetition, in all sorts of ‘rich lists’ produced by newspapers, but there are always sheikhs and sultans that have fancier jets, yachts, and palaces than Mittal. To British tabloid-readers tired of the shenanigans of David and Vicky Beckham, it might provide more grist to the mill. But sooner rather than later, LN will be studied by the more serious students of business for having created a new paradigm in the steel world.

This summer LN and young Aditya Mittal will have a well-deserved break. In the last four years since we featured them on the cover of Business India, the duo have increased steel production in their group to 42 million tonnes a tad less than Arcelor, the European giant that has arisen out of the merger of Aceralia, Usinor, and Arbed, which has a capacity of 44 million tonnes. Already market sources are pointing out that this quarter the L N M Group might have produced more steel than Arcelor. But the rate at which the M&A division headed by Aditya is carrying on due diligence and putting in bids, L N M might become the largest steelmaker sooner rather than later.

When LN first popped up on the radar screens of international journalists after the acquisition of Chicago based Inland Steel in 1998, he was called “Carnegie from Calcutta” by T h e Wall Street Journal. Today the LNM Group has grown to three times Andrew Carnegie’s legacy, 103-yearold US Steel. But the king is blasé about it. “Becoming the largest producer of steel in the world is not an end in itself. That can happen now or a year later, but the vision that we have put forward of a globalised steel industry is the more important thing,” says LN. “He has been opportunistic and acquired cheap assets from the public sector wherever they were put on sale— isn’t ‘vision’ too grand a word to describe it?” asks an observer who does not want to be quoted. But if you observe how LN functions and what he has been repeatedly saying at international steel forums, it becomes clear that there is a method in his global meanderings and acquisitions.

They all fit into a grand strategy, and now his rivals have also started acknowledging it. In May 2000, when LN spoke at the American Iron and Steel Institute of the need for consolidation and globalisation of the steel industry, the industry bigwigs listened carefully. In fact too carefully. A year later the slumbering US Steel ventured out of the US and acquired a steel plant in Slovakia in a closely contested bid with Mittal. Last year a new group, International Steel Group, emerged in the US, which acquired three bankrupt steel companies. And in December 2003, in a global steel conference in Paris, Arcelor CEO Guy Dolle spoke Mittal’s language of globalization and Mittal was quick to take a bow in his keynote address later in the afternoon.

“I have seen the steel industry for over 30 years. It has become increasingly clear to me that there is too much flab, there is too much fragmentation, and too little attention to lowering the cost of production. If other industries like auto and aluminium saw the virtues of consolidation and the virtues of globalisation, why not steel?” he asks. Four years ago, when he had a capacity of 19 Mt, Mittal told Business India that he considered 35–40 Mt as a decent size. However, now that he has reached that size, he has raised the bar further to 80–100 Mt. It does not take a genius to guess who might get there first! Malay Mukherjee, president and C O O of the group, who is himself becoming a legend in the industry as Mr Fixit, is confident that in Central and Eastern Europe alone the group will add another 10–15 Mt at existing sites in the next 3–4 years.

On 1 May LN and Aditya joined in the festivities in Warsaw on the accession of Poland and Czech Republic and eight other new states to the European Union by participating in the European Economic Forum. And they were smiling. After all, the LNM Group has emerged as the largest steelmaker in Central and Eastern Europe (CEE), and sees a big upside in these countries joining the EU. First of all, access to Western Europe becomes smooth. But that’s not all; with lower costs the region might become the manufacturing hub for Europe and one expects more investments from Brussels for upgrading roads and other infrastructure in the region. Thus there is going to be considerable demand growth within C E E, which L N M is best placed to supply. The auto industry, which requires high-end steel products, is also increasingly shifting to this region.

“I consider L N M’s acquisitions in CEE very positive. These countries are likely to grow fast economically, have a growing demand for steel (e.g. in construction), and have relatively low labour costs compared to Western Europe. EU accession will affect plants in Poland and the Czech Republic. Romania is expected to join in 2007. These plants are well located to supply both C E E as well as nearby Germany and Austria,” says Roger Manser, editor of Steel Business Briefing.

“The engineering skills in Czech Republic and Slovakia can be favourably compared with those in Germany,” says K.A.P. Singh, a former managing director of the Bhilai steel plant and now COO of Ispat Nova Hut and Ispat Polska Stal. Clearly Arcelor, ThyssenKrupp, and Corus, the European steel troika, will spend many sleepless nights now that L N M has outflanked them.

In a bid to use the geographic contiguity of Czech Republic and Poland to his advantage LN announced a common senior management team for the Czech plant and four other plants in Poland. “Together they have over 10 Mt of steelmaking, common iron ore sources in Ukraine, and are literally sitting on coalbeds with excellent coking ovens. With marginal investments the steelmaking can be increased by another 5 Mt,” says Frantisek Chowaniec, former C E O of Nova Hut, who has become a key member of Mittal’s team in Central Europe. “These plants are closer to each other than Bhilai and Bokaro. So their operational amalgamation was a given, but the key is to improve quality of products and move up the value chain,” says Mittal. So Malay Mukherjee, K.A.P. Singh, and Frantisek Chowaniec are using their 100 man-years of steelmaking expertise in executing LN’s strategy in weeks, rather than months.

Was becoming the largest player in C E E fortuitous or was it really part of a grand plan? “It was part of a grand plan and we have worked hard to execute it,” says Aditya Mittal, vice-chairman of the group. Aditya came fresh out of Wharton on 1997 and was thrown in at the deep end by LN to handle the I P O of Ispat International N V on N Y S E. “I took the company public. That was my first project. That helped me in many respects. I learnt a lot about the company, I met up with all the C E Os, etc, did a lot of due diligence. It also came to be known as my project, which got me a lot of publicity and respectability. It was a smashing success and was called the ‘equity deal of the year’, etc. It was a $400 million offering and we raised $727 million. Creating Ispat International was nontrivial too. We had to satisfy Mexican G A P, Canadian G A P, and so on. It was a multifaceted project. It was followed by discussions with Inland and a year later we acquired it,” says Aditya.

“It is wrong to say that Aditya has only seven years of experience in the business. What about those 21 years prior to that, when he had steel for breakfast and lunch with his father?” asks B.C. Agarwal, C F O of Ispat International, half in jest. Agarwal is a very low-key member of the core team that runs the company and goes back 30 years with LN, starting in the paddy fields of Indonesia.

Chicago-based Inland was the most ambitious acquisition of the group. The publicly listed company was an icon of the American steel industry with a customer list that read like the who’s who of Detroit’s auto industry. It was an integrated 5 Mt plant with its own iron ore and coal mines and a large R&D and product development centre with over 120 steel technologists. The $1.4 billion deal made Mittal a major player in the US market.

Mittal’s management has turned Inland lean and mean, saving $270 million in annual costs and increasing hot metal production by another million tonnes. Today, with a 6,500- strong workforce producing 6 Mt, Inland is one of the most efficient integrated steel companies in the US.

Ironically, Mittal’s magic seems to have hurt him in Inland. Other nearby companies like Bethlehem Steel and L T V went bankrupt and were acquired by I S G after reducing the liabilities through Chapter 11 proceedings, whereas Inland remained afloat through all this turbulence and still carries a large liability in terms of workers’ pensions and benefits, thereby dragging the group’s profitability down. Will bottomline-driven Mittal get rid of Inland? “That is totally hypothetical. Inland is one of the better companies in the US and there are many intangible benefits like access to high-end product technology and an enviable customer list, he retorts.

Be that as it may, after the initial high of acquiring Inland came the downturn in the world steel market caused by excess capacity and stagnation or recession in demand. In the meantime Mittal tried his hand at buying a steel company in a collapsing, post-Soviet Kazakhstan in 1995. He thereby took over a huge human resource liability. Karmet, the third largest steel plant in the erstwhile Soviet Union, had 30,000 workers, the coal mines had another 30,000. The company had to supply hot water and electricity to Temirtau town and run a 100-room hotel, a T V station, a newspaper, a summer camp for 1,400 children of employees, a hospital, and so on. But the 5 Mt plant itself was a shambles, producing less than a million tonnes, its 300M W power plant producing less than 90MW.

“We learnt a lot about hidden costs and surprises in such acquisitions,” says Mukherjee, who was dispatched to set up camp there and bring the plant back to life. It is said that a former high official in the Soviet government had set up a shell company as a marketing consultant to Karmet and had made a fortune through dubious practices. It took some time for Mittal to discover the minefield and eliminate the leakage. Today Karmet, headed by N.K. Chaudhary, a former Hindalco executive, is reported to be one of the most profitable parts of Mittal’s empire. However detailed financial figures for plants in Kazakhstan, Indonesia and the new acquisitions in Algeria, Romania, Czech Republic and Poland are not available to be compared with other companies as Mittal does not disclose them under the guise that they are privately held by his family.

By 2000, however, it was clear that the opportunities in former socialist countries of Eastern Europe, if properly utilised, would lead to a preeminent position in emerging Europe. One of the drivers for easy political acceptance of privatisation of steel and coal in Eastern Europe was the carrot of accession to EU. Chapter 15 of the EU accession document forbids governments from subsidising their steel and coal industries. If they could not raise finance from international financial institutions like I F C or the European Bank for Reconstruction and Development (E B R D), these companies would be forced to lay off with heavy political risks to the governing dispensations. So the governments found it better to privatise. However, they stipulated strict liability criteria, which prevented asset-stripping. The new owners could not transfer other debt onto the asset.

The father-and-son duo took the risk and cast their eyes eastward. “I became the head of M&A and with a small team I started looking at various government-owned steel mills up for privatisation. The first to come up was the steel plant in Slovakia. We put in a bid that was financially sound and expected to win it, but soon found that a good financial bid is not enough. One had to win over the unions, the old management, the government of the day, and so on,” says Aditya. What he does not say is that Bill Clinton, the then US president, used his considerable charm to persuade the Slovakian government of the day to award the plant to US Steel.

“Those were tough days. The industry was in the dumps and here I was so-called head of M&A, with a failed acquisition to show at the end of the year!” says Aditya. “I learnt the most lessons in business during those days. My father’s vision and style were definitely inspiring.” To overcome the angst of failure and a business cycle, Aditya took to skiing and long distance running. His creditable performance in the London Marathon a fortnight ago, where he ran “the whole nine yards” of 42 km despite a serious knee injury suffered in a skiing accident, showed that finally the frenetic sprinter has learnt the loneliness of a long-distance runner. Today, with several successful acquisitions under his belt, Aditya surprises many a visitor with his boyish charm.

“Aditya is startlingly assured. At a recent Metal Bulletin – World Steel Dynamics conference in Paris, his answers to a series of questions were clear, concise, and cogent. The audience was obviously impressed. When his father rose to address the delegates at lunch on the same day, he was asked how he intended to top his son’s performance that morning. “I don’t intend to try,” Mittal said with disarming modesty. “I intend to follow him. He is the future.” Mittal got a round of applause, Metal Bulletin edit or Bob Jones recalls.

“My most challenging period was 2001. Steel was dead, capital was scarce, we were doing three attempts at acquisition simultaneously. In fact we were doing circuits — Monday to Wednesday I was in Romania (the cabinet would meet on Thursday), Thursday and Friday in South Africa, and over the weekend in Algeria (since they are closed on Friday). And then Annabas in Algeria happened in June, Sidex in July, and Iscor in August. Altogether it was 14 Mt! That was the most challenging and rewarding period. I also got promoted to V C,” Aditya grins.

Perhaps the most recent acquisition, of four Polish steel companies rolled into one entity for the purpose of privatisation, has been the most difficult and rewarding of all. It has added 6 Mt to the Mittal stable andfinally made Mittal the most formidableforce in Europe. But it wasn’t easy. Here too the Mittals encountered US Steel and the persuasive powers of George W. Bush. In the midst of war in Iraq, Bush made a stopover at Warsaw and not only persuaded Poland to provide troops for peacekeeping in Iraq but also did his bit for US Steel. So certain were observers of another battle lost by Mittal after Slovakia when confronted by the White House, that The Independent of London carried a bylined story on 25 May 2003 with the title ‘Bush beats Mittal at his own game’. Leaving nothing to chance, the US ambassador to Warsaw met the Polish union leaders 11 times to help them make up their minds. But all the high-pressure lobbying eventually backfired. The Mittals won the bid.

They had learnt their lessons from Slovakia well. They assembled a nine member negotiating team which included Polish American executives from Inland; Chowaniec, the C E O of the Czech plant across the southern border to reassure the Poles that the Mittal weren’t destabilisers; union leaders from other plants to show that they deliver what they promise in terms of the social package; and so on. In the final analysis, the American artillery proved counterproductive. The Poles must have thought, “If this is the pressure before privatisation, what will we have to go through afterwards, if it is sold to the Americans?”

“Poland has taken us to new levels in the corporate world. The press, unions, and the government scrutinized our organisation extensively technical competence, corporate governance, people, and so on. We came out with flying colours. Today nobody can say that L N M is a secretive group that can only take over run-down companies. We had a better financial offer and a fine track record of turning companies around in more than nine places in different cultures and societies,” says Mukherjee proudly.

However, the acquisition in Romania led to a lot of controversy. Sections of the British press went hammer-and tongs at Mittal and Tony Blair. They claimed that Mittal’s donation of £125,000 to the Labour Party was a quid pro quo for a little help from Blair in pushing the Romanian government in favour of Mittal. “Finding an opportunity to take Blair’s squeaky clean image down a notch or two, the press went haywire. With a pinch (actually more like a handful) of bigotry against Asian businessmen, they tried to dig up all kinds of dirt against him,” says a P R consultant from London. Lakshmi Mittal himself learnt about the campaign at a party in Delhi, when a well informed Atal Behari Vajpayee commented, “Lakshmiji you seem to have shaken Blair up.”

But the dirt hit the fan soon after the friendly banter. The Mittals refused to comment on the affair and remained incommunicado to the press. After all, the donation to Labour was an open affair publicised on several Websites that track such things. The letter from Blair to the Romanian P M pushing Mittal’s case too was a routine one that all western governments do for their businessmen. But the British press found fault with Blair since they alleged that Mittal was an Indian and not British, and that though he runs his empire from London the companies themselves are incorporated in Holland, and so on.

“The whole thing was nonsense. Privatisation of Sidex was one of the most transparent processes. L N M was the only one left standing at the end of it and naturally won,” says Chris Beumann, senior advisor to E B R D, an international financial institution formed with contributions from 60 governments with the express mandate to help former Eastern European economies move towards privatization and market economies. The bank has funded over 100 privatisation projects in Eastern Europe deploying 3.5 billion. Mittal has nothing more to add than a cryptic “The whole thing makes me sad.”

Be that as it may, it is one thing to acquire a company but another to successfully turn it around. Here the engineering skills of Mukherjee and his team have played a major role.
Mukherjee, an IIT Kharagpur alumnus and former general manager at Bhilai, has become a globetrotter who has fixed problems with the direct reduced iron (D R I) plant in Mexico and the whole plant in Kazakhstan, getting out of the barter system that was bleeding Sidex in Romania, getting outdated twin-hearth furnaces in Algeria up and running, and so on.

“India has a huge resource of highly skilled and knowledgeable engineers, educated and badly paid in the public sector. The Mittals pick the best managers – even ones who might appear to be past retirement age – and pay them handsomely. But these managers have to perform and perform brilliantly in some of the world’s most unpleasant and dangerous environments,” says Jones of Metal Bulletin.

“The body of technical knowledge that exists in the group is to be found nowhere else in the world,” says director (continuous improvement) Bill Scotting, a former McKinsey & Co veteran. “Blast furnace relining, D R I, Corex, billet casting, ingots and slab casters, thin-slab casters, and a variety of rolling mills... The list is endless. A veritable school of steelmaking exists here,” says Scotting. “The strength of the group is that it not only uses its global operations to purchase raw materials at the lowest cost and sell the right mix of products at the highest value but also pools its knowledge to benchmark performance and to fix technical problems in any of the plants,” he adds.

When Business India visited Ispat Nova Hut in the Czech Republic, this factor was amply evident. The Steckel mill in the plant went down, disrupting production. The mill, built at a considerable expense of over $275 million by the Czech government, has been a continuous source of problems in an otherwise well-maintained plant. The American contractor went bankrupt in the middle of commissioning and caused untold delays and problems. Having had experience with a similar mill in its Quebec plant, LNM was able to get it up and working when it took over. On the day of this writer’s visit, an electronic card responsible for communication between two parts of the mill went kaput. It was diagnosed as due to problems in the embedded software. However, no vendor was available to fix it. The top management pooled their resources and had wires burning across the globe, restoring the mill to full functioning in 24 hours — a matter that could have taken weeks in any other company, waiting for an expert from the vendor.

In fact the turnaround and successful operation of every single acquisition has been a result of using such global expertise. The Algerian plant Annabas, for example, was built by the Russians, but also had considerable French technology. The blast furnace and sinter plant were French, while the steel melt shops were Russian. It was an isolated country. External help from vendors was not available because of riots and religious fanaticism, etc. A new plant that was commissioned in 1994 ran for two days before a problem arose and the people who built the plant did not come. The plant had 400 experts from Russia. But Ispat hands who had plenty of experience dealing with Russian experts in Bhilai and Bokaro dealt with the issues appropriately. They also used their own knowledge of Russian and Russia to source spare parts. Experts from plants in France and Quebec also arrived and unraveled the problems. It all helped. A plant that produced barely 700,000 tonnes now makes 100 per cent more.
Tying up appropriate raw material supplies will soon lead to another blast furnace becoming operational here. Today the government showcases it as a successful privatization and L N M has become the dominant player in the Maghreb region comprising Tunisia, Morocco, and Algeria, where considerable developmental activity is going on.

Then came Sidex. A huge plant where the shop floor knew how to run the plant but did not have any support from the management. It was driven by the Mafia. Everybody was taking away whatever he could. It was said that there were many millionaires in Galati, while the plant lost a million dollars a day on an average. So straightening out the commercial side was important. There were operational issues like tying up iron ore, coal, electricity, and gas as well. Narendra Chaudhary, another former Bhilai hand who had earlier managed the Kazakh plant, was transferred here. The local plant management was sent to other plants in the group to learn innovations in maintenance practices, etc. The plant had 27,000 people, 9,000 of whom accepted a VRS. The better lot in the old management were empowered, while corrupt ones were sacked. When the new marketing team from L N M itself caught the virus of corruption, the whole team was sacked.

Today the government talks to LNM first when any new thing comes up for privatisation. Of course there is still competitive bidding, but L N M’s credibility is very high. In fact the group bought four more downstream plants recently in Romania, thereby becoming a very strong player in steel tubes for the global oil and gas industry. On the other hand two plants, which had been privatised to a US and an Italian group, are now closed. But Sidex has seen its stock rise 350 per cent after privatisation. No wonder that E B R D officials like Chris Beumann don’t hesitate to sing paeans to Mittal. The success in Romania has had a snowballing effect and played a major role in the acquisition of the Czech and Polish plants. The local bishop in Galati, Romania, is also happy as Mittal respected his wishes and built a church for the community near the plant.

In South Africa, apartheid and international isolation had left a good plant behind international norms of efficiency. It was part of a coal mining company and was subsidised by the mines. So the government thought it would be better off by demerging the two and bring in a strategic investor for steel. L N M bought 30 per cent of the equity from the market and was offered stock in place of a consulting fee for every rise in profitability. As a result L N M today owns 49.9 per cent of the company and is waiting for the go-ahead from the Competition Commission to acquire a majority stake. The stock of the company has gone up from six rand to 37 rand, which in dollar terms is even more impressive, considering that the rand has appreciated by 100 per cent against the dollar in the interim. Besides increasing the shareholder value of the government’s remaining holding, Mittal has further endeared himself to the ruling A N C by appointing a black African as chairman of the company for the first time in its history.

Then came the Czech Nova Hut, which was a good plant but the management had miscalculated the returns on investments on the Steckel mill. The other source of problems was the outdated twin-hearth furnaces that exist only in Bhilai, outside of Nova Hut. This technology not only takes 5–6 times longer to make steel, but also needs constant expert supervision. Tuning the plant up and replacing the old barter system with international marketing has not only led to increased profitability of over ...80 per tonne within a year, but the stock of Nova Hut has also gone up 750 per cent.

While the Poland story has yet to unfold, Mittal is proud that he is restoring the glory of a plant in whose guest book Jawaharlal Nehru wrote on 25 June 1955, “This is a magnificent enterprise which deserves a much longer visit than I have been able to give it. I wish I could see it more thoroughly. And all this has grown up where there were fields four years ago. I congratulate those who built it.”

With raw material prices shooting up, everyone in the steel industry is realising the truth in Chanakya’s Arthashastra from the 4th century BC: “The treasury has its source in the mines; from the treasury the army comes into being. With the treasury and the army the earth is obtained with the treasury as its ornament.” (Chapter 2, Section 12). Situated in the midst of Magadh, an empire that Alexander made friends with due its prowess in iron technology, Chanakya very well understood the economics of the metal industry.

Mittal has focused on tying up raw materials by acquiring as many mines as possible. Last week he bought an iron ore mine in Serbia and now his teams are scouring Ukraine, Russia, and Iran for iron ore and Central Europe for coal. The other focus has been acquiring downstream mills as in Romania and Macedonia, while building a new one in China.

Last year the group had a profit of $2.2 billion on sales of $12 billion. Considering that the privately held part is virtually debt-free, that’s a lot of money. But this year, with higher sales and the acquisition in Poland, Mittal has forecast sales of $16 billion. Being the most integrated large steel company, profits too are expected to be higher. However it is to be noted that the public company Ispat International is trading at $11 (the issue price was $27) at a P / E multiple of 21(Tisco is trading at a P/E of 8.5).

“Today we have enough experts to run steel plants, so we are looking for talent elsewhere,” says Mittal. This year the IIMs in India saw the L N M Group visit their campuses for recruitment. “The CEO of our Mexican plant is from the chip industry. The one in Kazakhstan is from the aluminium industry. I am looking for cross-pollination now,” adds Mittal. With more and more experts acknowledging Mittal’s skills in running the first steel M N C, he shouldn’t have any problem attracting talent from the top business schools of the world.

While Asia and China in particular have led the bull-run in the steel industry, Mittal’s eyes are firmly on the EU as the emerging economic giant. And for that nobody is better prepared than he. “Central and Eastern Europe is definitely one of the best places to make steel in the long term. In fact, metallurgy seems to be vanishing as a science and art in the developed world. It would not be surprising if we keep it alive here by building a fine research institution right here,” says Mukherjee.

As for forays into his motherland, Mittal has so far confined himself to philanthropy in the form of building a hospital for earthquake victims in Bhuj and an IT institute in his home province of Rajasthan and a technology institute for women in Mumbai.But what about steel? “Whenever the Indian government is serious about privatising SAIL we are ready to participate,” he says.

“My theme at this time is how to make the steel industry sustainable. Actually it is very simple. The day every steel CEO sees making money as his objective the steel industry will become sustainable through downturns and upturns. We have been able to provide leadership in consolidation, globalisation, and low-cost production, and this is being recognised. Whether we become No. 1 or remain No. 2 is not important, but the leadership we are providing is. We have shown enough entrepreneurship now we have to build an institution,” says Mittal looking forward, which is of course easier said than done.

Commenting on the acquisition of a steel plant in Trinidad by Mittal, Business India wrote 16 years ago (14 November 1988): “A new Indian multinational is born, shall we say!” Last year the Confederation of Indian Industry had Building the Indian MNC as its theme. In a short period of time Lakshmi Mittal has provided to Indian businessmen one successful model of building an M N C and that too in an industry where none existed before. May he inspire a few more.

Knowledge as Business

Business India, Oct 9-22, 1995

The Know Business

Can India become a player in the global knowledge market? Yes, and the trend has already started. Through an extensive investigation of knowledge based Indian business, Business India discovered companies and labs that view the opening up of the Indian economy as an opportunity.

Shivanand Kanavi

Suddenly, there is an air of excitement in a number of Indian companies and research centres. But not only excitement –more importantly, there is a curtain of silence, one that evokes secrecy.

If you walk around an R&D centre these days and ask casually what’s new, the surprising response could be the lack of an answer. All one gets is polite smile and, “Sorry, this cannot be disclosed.” It takes an enormous amount of legwork, ingenuity and creative persistence to get information on business-oriented issues. Why has this veil dropped, in organization that would brag about their lab scale results being “break throughs in technology”, only a little while back?

The answer is, because there is a new understanding of the concept of wealth today. There was a time when only tangibles counted, but in this changing world, ideas and knowledge increasingly translate into hard cash. A design, and idea, a novel chemical entity, a new testing procedure, a probe to identify the presence of certain biological molecules, a way to increase the yield an efficiency in a reaction, identification of a need in the software/hardware market which can be satisfied by a suitably designed new product –the list goes on and on. All such kinds of knowledge, and more, mean hared cash and that too in any currency in the world.

Transnational corporations, beleaguered by rising R&D costs and diminishing returns, have been on the prowl for new technology, in order to stay globally competitive. In the last three-four years, a quiet change has taken place. India has become an important destination on the itinerary of globe-trotting executive vice-presidents sourcing global technology for their giant employers. Abbott, Acer, Akzo, Du Pont, Eli Lilly, FMC, General Electric, Haldar Topsoe, Hewlett Packard, Hughes, Lum­mus, Motorola, Nova Nordisk, Smith Kline Beecham, Telstra, and Unilever are among the notables who already have R&D alliances in place here.

Indian industry, led by the pharmaceu­tical and agrochemical sectors, does not lag behind in its support of R&D. Even Reliance, which once prided itself in buy­ing global scale manufacturing plants for commodity chemicals, apparently ignor­ing R&D, now highlights its joint technol­ogy development with National Chemical Laboratory (NCL) Pune, in the latest (1994-95) annual report. The NCL process, involving a novel non-polluting zeolite-based catalyst to manufacture LAB (linear alkyl benzene), is being tested in a pilot plant at Patalganga. If successful, it will put Reliance on the global technology map again - but this time as a technology supplier.

Once knowledge becomes marketable, it has to be protected as property. But even while the law is taking its time to conform to international norms, a working arrange­ment has come into being with the Council of Scientific & Industrial Research (CSIR) framing its own intellectual property rights (IPR) policy. Today its labs are signing contract research and joint technology development agreements - with confi­dentiality clauses written in - with Indian and foreign clients like Abbott, Du Pont, FMC, GE, Nova Nordisk, SmithKline Beecham and others.
What has catalysed these stirrings among Indian companies and labs, which now aim to become global technology players? Very simply, it is the opening up of the Indian economy. So far, India has been known for manpower export, a thin cover for what is otherwise known as "body shopping". In the meantime, Indian industry focused on importing obsolete, "proven" technology and reverse engi­neering, while politicians back-patted themselves with pointless claims of having built the second largest scientific-technical manpower base in the world. But today, the scene is changing.

Externally, economic stagnation in North America, Europe and Japan has led to intense competition among giant corpo­rations. To stay ahead of one's peers, acquiring newer and newer technologies rapidly has become a must. And strategic alliances are the key to rapid acquisition.

As Dr David S. Weir, vice-president (global technology) at Du Pont, explains, "Self-sufficient, independent R&D efforts are unlikely to meet today's demands, even for giant corporations. Our search today is from a global perspective, rather than being country-specific. We have tar­geted India for special emphasis and cre­ated a separate technology office. For example, our tie-up with IICT (Indian Institute of Chemical Technology) Hyder­abad, to screen the molecules they synthe­sise for agrochemical activity, might lead to the joint development of new agrochemicals with patent and licensing rights shared by both. It is a win-win agreement”

If IICT produces a molecule with novel molecule with novel agrochemical applications, Du Pont will run it through its elaborate system of screening. It will take all te necessary steps to develop it into a product and register it as a safe agrochemical in different countries. The entire process is both expensive and time consuming, taking anywhere between four and six years. IICT will have the marketing rights for India and the surrounding region, while Du Pont will have the rights for the rest of the world. On top of this IICT will get a royalty of about 15 per cent.

The most articulate champion of research as business is CSIR director­-general Dr R. A. Mashelkar. Before his recent elevation to this prestigious position, Mashelkar headed the NCL. Much before the events in 1991 in Moscow, Berlin and New Delhi, he put globalisation of Indian R&D on the agenda, and started a series of changes there. Mashelkar is not only an internationally well-known chemical engineer and an authority on polymer engineering, he is also the most well-known Indian R&D manager. He transformed NCL very rapidly into a model R&D centre, one that thinks globally.

Today, NCL holds the highest number of international patents in India. A culture has been created where PhD students file international patents when they find some­thing interesting. Patent holders are given awards and peer recognition at NCL. In fact, nine of the 21 people felicitated by NCI. at its last foundation day for authoring US patents were PhD students. Because of the patents, MNCs have made a beeline to NCI. for contract research and even joint technology development, together with sharing intellectual property rights, in catalysis and polymers. GE, Du Pont, Akzo and Neste OY are among NCL'S better known clients and collaborators. And it is beginning to payoff. NCL'S foreign exchange earnings through technology sales and contract research exceed $2 mil­lion a year.

This is quite a change from earlier attitudes. There arc many cases of missed opportunities due to the earlier emphasis on publishing papers rather than developing marketable technol­ogy. Even realising what is patentable and what is not at the right time can lead to money flowing in. For exam­ple, the DNA fingerprinting tech­niques developed by Dr Lalji Singh at the Centre for Cellular & Molecular Biology at Hyderabad have not been patented despite being 30 per cent faster than others.

A good example of a sudden wind­fall as a result of holding original patent rights for a new drug molecule is that of Centchroman. Centchroman ­a non-steroidal oral contraceptive developed by the Central Drug Research Institute (CDRI) at Lucknow - recently attracted international attention. Due to its chemical nature, Centchroman doesn't have the side effects that steroidal contraceptives, ­which affect the pituitary gland ­have. But like other oral contracep­tives, it has a limited market in India, mainly due to cultural reasons. Recently, however, scientists discov­ered new uses for Centchroman that promise to bring in millions of dollars for the CDRI.

Firstly, Centchroman can be used to treat breast cancer. In terminal cases it has been found that the drug reduces cancer growth. Not only that, it often can stop fur­ther growth and at the least improve the patient's profile. The human trials for this activity arc at an advanced stage.

Again, it has been found that Centchro­man has been effective in halting brittle­ness of bones -- which can lead to fractures, or worse -- due to old age (osteoporosis). Swedish pharma company Nova Nordisk, which identified the activ­ity, rushed to ("DRI for joint ownership of a use patent and licensing.

Cases like this illustrate why one of the first things Mashelkar did when he took over C:SIR was to sit together with all the laboratory directors (there are 39) to iden­tify existing patentable content in their knowledge base.

Indian R&D’s thrust so far has been organic synthesis and process develop­ment. The strength of companies like Ran­baxy, Lupin, Dr Reddy, Cipla, SOL, Gharda, United Phosphorus, Excel and others has been in process development. While this has been reverse engineering in most cases, totally new processes, leading to international patents, have also been developed.

Specialty chemicals involve difficult process technology, novel catalysts etc. But one can at relatively low capital cost, build a 1.000 to 2,000 tpa plant to achieve global scales. Thus, specialty chemicals have become a playground for many Indian entrepreneurs and laboratories.

Ranbaxy's SLlccess with the compli­cated synthesis of Ccfaclor has become an industry legend. The story goes that Dr J.M. Khanna, head of R&D at Ranbaxy, went to the US patent office with 18 differ­ent processes for Cefaclor, each time fail­ing to prove novelty. Not disheartened, he continued to work at the proolcm, and the 19th time, produced an acceptable solu­tion. All that diligence and hard work is paying ofT. Says an industry observer, "If Ranbaxy can spend Rs40 crore a year today on R&D. it is the money from Cefa­clor that they arc ploughing back. Eli Lilly itself buys aoout SI) million worth of Ccfaclor from Ranbaxy."

Eli Lilly, the original inventor of Cefa­clor, was impressed by Ranbaxy's abilities to resynthesise and compete with it in the generics market once the drug went off patent. After all, Cefaclor is the biggest selling anti-bacterial today. The result was a joint venture with Ranbaxy. The relation­ship is strengthening, and today Eli Lilly­-Ranbaxy is investing $100 million in manufacturing and marketing under a joint brand name, as well as joint R&D in process development.

IICT is today minting money from process development. It expects to earn close to Rs 17 crore this year from tech­nology fees and sponsored research. That's more than half its budget! The institute has developed numerous processes for agrochemicals and pharma­ceuticals and its client list for full tech­nology packages, including process know-how, plant design and performance guarantees reads like the Who's Who of the Indian chemical industry.

Even commodity chemical manufac­turer Herdillia Chemicals followed the Strategy of specialty chemical development, under the guidance of well-known chemical engineer M.M. Sharma, FRS. Today, its isobutyl Ibenzene and diphenyl oxide plants compete with giants in the global marketplace.

Having widened their horizons to the global market, Indian entrepreneurs, even small and medium ones, are ready to take big risks on technology development, the gamble is worth it; the rewards are very high if they succeed. Herdillia invested Rs20 crore to 30 crore in process technology five years ago- a move that was considered bold at that time. But, today, R&D efforts are backed by ten times that amount.

For example, even a small Rs50 crore company like Adarsh Chemicals has teamed up with Indian Institute of petroleum(IIP), Dehradun and NCL and is planning to invest Rs200 crore in new technology. Part of the project – cloaked under a blanket of secrecy – is IIP’s patented process on the single-step oxidation of cyclohexane to produce and adipic acid which is being scaled up at Adarsh’s pilot plant near Surat. The foreign collaborator is the well-known international technology vendor, Lummus of the US.

Adipic acid is the crucial intermediate for Nylon 6,6. if successful, IIP and Adarsh will become global players in adipic acid technology. The existing technology, owned by Du Pont, is a two-stage one and has the added disadvantage of using the environmentally-dangerous concentrated metric acid. IIP’s process, developed by Dr. S.K.Gupta and his team, uses a non-poluting catalyst. The importance of the development may be gauged from the fact tat just prior to the signing of the agreement between Lummus, IIP and Adarsh, a senior DuPont executive camped for three days at Dehradun, trying vainly to swing the deal the DuPont way till the last minute.

Dr.V.P. Kamboj, director, CDRI, reinforces the oint about techies’ readiness to take risks. He relates an example, “today we have a partner in drug development –whose name we cannot disclose – who has joined us at the lead molecule stage. Normally, industry wants tie-ups at the much later stage of human clinical trials, where the possibilities of success full drug emerging are much higher. Whereas this collaborator is ready to spend crores of rupees and finance the elaborate and risky process of new drug development. The notable thing is, today he is not even among the top five Indian pharma companies!”

Others – Ranbaxy and Dr. Reddy’s Labs(DRL) among them – have also taken the plunge into basic research, investing crores of rupees in new drug development . the irrepressible Dr Anji Reddy has publicly declared his ambition of making DRL the first Indian company to develop a new drug. Recently, he filed four Indian and international patents for new molecules wit promising levels of anti-cancer and anti-diabetic activity. Trials in the UK are under way currently. If successful, his ambition may be realized. Global pharma companies are negotiating with him for alliances and licensing rights.

One route with less risks but with large benefits. If cleverly exploited, is that of contract research. Contract research means conducting a given experiment or carrying out R&D as per the client’s instructions. Why a particular project is to be undertaken or for what a synthesised molecule is needed is not told, and the fol­low-up information is also not supplied. This way, MNCS can exploit cheap intel­lectual labour in India. But Mashelkar championed it in NCL, believing that it would help upgrade project management, delivery schedules, documentation and similar disciplines at NCL. The results are there to be seen. Clients like GE and Du Pont keep coming back. In fact, they are now signing more lucrative joint technol­ogy development contracts, with intellec­tual property rights shared by both.

A similar development occurred at Biocon, a small biotech company (1994-­95 turnover: Rs30 crore) based in Banga­lore. It started as a IV between an Irish biotech company and CEO Kiran Mazum­dar in 1978. From value-added exports, Mazumdar soon shifted to developing skills in solid substrate fermentation. The technology was then closely held by Japanese companies, who ruled the roost in specialty enzymes. Today, Biocon is a significant player in this field, with exports of over $3 mil­lion a year. Mazumdar later set up an independent com­pany, Syngene, to exploit her skills in genetic engineering and peptide synthesis. Ini­tially, Syngene synthesised molecules on a contract basis. It has grown already, using skills in fungal products, and today screens its own mole­cules for therapeutic activity. The result is that Syngene is hotly chasing lead molecules.

At times, a technological adversity can be converted into an oppor­tunity. For example, most catalysts used in chemical processes are highly polluting. With environmental consciousness grow­ing in the West, there is greater and greater demand for' green technologies' - that is, process technologies that are less pollut­ing. Indian expertise in the non-polluting zeolite clay-based catalysts is now paying off, as they increasingly replace the tradi­tional ones. Paul Ratnaswamy and his group at NCL have become a frontline group internationally in zeolite catalysts. NCL and IIP are two labs that are making hay while the sun shines on zeolites.

Again, in the 1960s, thalidomide, given to expectant mothers to bring relief from morning sickness, was discovered to produce horrendous deformities in their babies. Further investigation into this medical tragedy led to the realisation that there are two mirror images of the thalidomide molecule. One has a benefi­cial effect while the other causes deformi­ties. Thus chiral synthesis, that is, synthesising the correct mirror image of the molecule selectively, became a chal­lenge. Today, Indians have acquired con­siderable expertise in chiral synthesis. Former director A.V. Ramarao built up a world-class group at IICT, Hyderabad in chiral synthesis.

Similarly, using their biotech expertise, Dr Qazi at the Regional Research Lab (RRL), Jammu and Dr Bhalerao at IICT, Hyderabad have come out with novel fer­mentation-based enzymatic processes for the chiral synthesis of drugs, work that is attracting attention. Qazi has just signed a contract for transferring the technology to synthesise chirally-pure Naproxen to a Hyderabad-based drug company that is the largest manufacturer of the drug. Enzymes, being themselves able to distin­guish between right handed and left handed molecules, selectively catalyse the synthesis of one of them. Enzymatic processes are one route to chiral synthesis, but they require economic production of sufficient quantities of the enzymes. Qazi and Bhalerao's work will be very useful here.

An adverse situation that was converted into an opportu­nity is that of Gugulipid - a cholesterol-lowering drug developed by CDRI. CDRI'S technology for isolating gugul­sterone from a plant resin was passed on to Cipla and a French company. But since the resin is not available now, the French are unable to manufacture the drug. Cipla chairman Yusuf Hamied, an excellent synthetic chemist himself, turned this adversity into advantage by developing the synthetic route for making gugulsterone and patenting it internationally. In the absence of plant material, there is no option but to develop synthetic routes if possible, or develop simpler synthetic analogues and convert them into drugs.

What about exploiting our vast bio­diversity - ranging from Himalayan flora and fauna to tropical rainforests? Multinationals have exploited India's plant wealth and developed a number of new drugs, but Indians themselves have not succeeded in doing so. Even the herbal drug industry is plagued by numer­ous problems like lack of standards, lack of proper technology for growing medici­nal plantations and hence lack of appro­priate plant material in sufficient quantities. But with an increasing number of people in India and abroad ready to try herbal medicines, the industry is expected to grow from the current Rs800 crore to Rs4,000 crore by 2000 AD. We must take steps to protect the intellectual property of our traditional medicinal systems.

Prof S. S. Handa director of RRL (Jammu-Tawi) and his associates' unsung work in plant-based drugs at RRL, Jammu is very important. They are verifying the claims made in Ayurvedic texts about ail­ments for which modem medicine has no clear-cut solution yet, such as arthritis, rheumatism, diabetes, liver disorders etc. Once a claim is verified, the formulation can be standardised, the herbs involved can be properly classified and even grown so that it can be marketed reliably . ''Today, the industry largely relies on the bazaar for these plant materials. Whether the species is right, in what condition it is stored, what disease the plant has had, etc, nobody checks. One often sees herbal godowns where rats and other pests have been having a field day," says Handa.

Parallel to its herbal drug programme, RRL is also involved in isolating both the most relevant herb and its active com­pound from ayurvedic cocktails, so that modem medicines can be developed from them. The results obtained by RRL in immuno-modulators, arthritis, hepato­protectors, etc have been very encourag­ing, and there is a possibility that new drugs might be developed. The work being done by this low-profile team in Jammu is not only first-rate but even heroic, when one realises that they have been caught in the midst of political turmoil. Its scientists have even been taken hostage by militants. (They were kept in custody for 46 days before being released in an exchange).

While catalysts and specialty chemi­cals like drugs, agrochemicals and others have been at the front line of Indian technological development, where are computer software and telecom, an essen­tial part of today's technological revolu­tion at the global level ?

"With all these high-profile computer professionals, Indian industry has not even produced a video game that can be sold worldwide!" sneers one industry observer. Points out another, "All the big business groups in India - Tatas, Birlas, Mafatlals, Mahindras, etc - are in the infotech busi­ness. In fact, the Tatas have at least five companies in the field. The absence of an Indian product in the global market implies that traditional Indian business­men cannot be pioneers in infotech."

Despite phenomenal growth rates, it is a fact that the Indian software industry has largely sold knowledge workers in its body shopping exports, rather than take risks and invest money in product development. Interestingly, it is relative newcomers like Wipro, Ramco and Infosys that have developed products that are making a name in the global market.

Every infotech and communication multinational worth its name is rushing to India to set up software development cen­tres. This is no different from body shop­ping. But it seems as though it will have secondary positive effects. One of the problems in Indian software product development has been the distance between users and developers. Knowledge and nearness of the market is absolutely essential to come out with a product that will succeed. The R&D arms of MNCS coming to India are thus indirectly bring­ing the market nearer. Soon we will see individuals coming out of these establish­ments and setting up their own "garage operations" as start-ups.

Signs of this emerging trend are already visible. A number of small software com­panies are coming out with niche products. In fact, since body shopping and project exports are manpower-intensive, they can only be done by large software houses. The only way smaller companies can survive is through innovative niche product develop­ment. Thus, what happened in Silicon Val­ley in the US might well repeat itself in India, albeit a quarter-century later. In infotech, the constantly changing technol­ogy and market needs allow latecomers to join in the gold rush.

"We have gone through the stages of body shopping, offshore development, India development centres (captive R&D groups dedicated to a client but located in India), product development on contract, etc, to reach a stage where we are devel­oping products of our own. Even now, it is not that all the earlier stages have stopped. However, their relative impor­tance will keep changing," says Dr Srid­har Mitta, president (technology), Wipro Infotech. With a new global partner like Acer in a JV, one will not be surprised if Wipro will be one of the first to design the architecture of systems based on the still­-experimental P6 (Intel 686 chip)! Wipro has come out with innovative products such as a Pentium-based symmetric processor, a LAN switch meant for data communication based on the Asymmetric Transfer Mode technology and a remote access LAN server. "The real money is in communication software products where we can make an impact despite being latecomers," comments Ashok Soota, president, Wipro group. The convergence of computers, communication and consumer electronics in multimedia and internet will provide numerous opportunities for the bold and farsighted.

Dr Bishnu Pradhan, executive director, C-DOT, is pleased that the industry is finally turning towards what he has been saying for quite some time about commu­nication software. Having suffered desta­bilisation at the end of the 1980s at the hands of politicians, and then further shaken up by the opening up of the telecom sector, C-DOT has finally emerged with an aggres­sive strategy. Pradhan's game­plan is to concentrate on developing telecom software while continuing the develop­ment of better and cheaper exchanges. The completion of service checks for the 40,000­line C-DOT MAX switch in Ban­galore signals that C-DOT's original mission has been more or less accomplished. The chal­lenge now is to develop the soft­ware and hardware to make the C-DOT switches ISDN-compatible. ISDN will make a single telephone line capable of carrying voice, fax and computer data. C-DOT is expected to complete this in three years.

C-DOT has also made important advances in developing switches that can provide value-added services like the 1­800 toll-free calls, credit card verification etc. The ccs-7 (Common Channel Sig­nalling) recently developed by C-DOT will help separate the switching function from the intelligent functions within a switch. This will make it possible to upgrade its exchanges to provide new value-added services the very next year. Pradhan has not been averse to forging alliances with Telstra, Motorola etc either. C-DOT's switches are still proba­bly the cheapest in the world and Telstra plans to use its rural automatic exchanges to link the scattered communities in Aus­tralia. C-DOT is also developing low-cost wireless in local loop telephony, meant for difficult terrain where physical cabling is not cost-effective.

Through its switch technology, C-DOT has earned royalties worth over Rs60 crore. Meanwhile, it is being continuously raided by multinationals for trained personnel- many admit they are the best in telecom in India, with lucrative pay packages. Pradhan is working hard to corporatise C-DOT to gain flexibility in business plans, salaries and become more market savvy.

While Wipro and C-DOT are probably the tip of the iceberg that will surface in the next five years, the Indian Space Research Organisation (ISRO) is already making waves in the sky. Intelsat, the global satel­lite communication consortium, has leased II C-band transponders on the Indian communication satellite Insat-2E (to be launched in 1998) that will yield a revenue of over $100 million to the department of space over 10 years. In another area, remote sensing, the painstakingly-built expertise in designing, building and launching Indian Remote Sensing satel­lites and developing the infrastructure for remote sensing software will make India the lead supplier of remote sensing data to the world market in three years. The alliance with the marketing company, Eosat of the US, is expected to help ISRO achieve this target.

The near-perfect launch of PSLV-D2 last October, if followed by another one in early 1996, will make it possible for ISRO to launch 2.5 to 3 tonne communi­cation satellites in the Low Earth Inclined Orbits. That might come in handy for a host of satellite-based global telecom schemes, including Motorola's Iridium, which can then avail of ISRO'S launch services. Meanwhile, ISRO is quietly negotiating lucrative subsystem supplies to major satellite builders of the world like Hughes, Matra-Marconi, Loral etc. Despite the shock suffered by a debilitat­ing media campaign of innuendo and sus­picion in the so-called 'ISRO spy scandal', ISRO'S low-profile scientists and engineers are producing a remarkable hi-tech success story, built painstakingly out of knowledge bricks.

At more perceptible altitudes is another success story in engineering and design in the making. And that is in civilian aircraft design. Indian aerospace engineering, which produced such internationally ­known engineers as S S Dhawan, R. Narasimha and others, is finally taking the plunge into the lucrative civilian aircraft market. The National Aerospace Labora­tory (NAL) in Bangalore has already come out with a pro­totype of a two-seater train­ing plane, the Hansa, targeted for flying clubs.

Now, NAL has developed a complete design package for a 14-seater aircraft. Named Saras, the aircraft can be configured as an air ambulance, a passenger air­craft, an eight-seater execu­tive plane and so on. There is an estimated demand for about 300 such planes in India over its manufacturing life cycle. A Russian design centre, the Myasishchev Design Bureau, which was in the midst of designing one itself, saw the superiority of the NAL design and teamed up with NAL to complete the package. Russia itself will need around 1,000 such aircraft. Currently NAL director Dr K.N. Raju and his team are looking for industry partners to produce prototypes.

Says Raju, "A similar aircraft produced by the Italians cost over $250 million for development. A liberal estimate of devel­opment costs for our design is expected to be $40 million, which is being shared equally by us and the Russians. Each air­craft will give a neat Rsl crore profit for the manufacturers while pricing it at about $3 million, well below all the competing models in the market. CSIR is putting up Rs25 crore and another Rs40 crore needs to be put up by any partner from the private sector. The manufacturing itself will need only RsI70crore." It won't be surprising if an ambitious new entrepreneur emerges soon, for NAL is currently negotiating with a number of them.

Each of these examples of knowledge ­based businesses are stories in themselves, but the trend, clearly, is that a few techies in business and research are mixing the two into a heady brew. Some businessmen are investing in research while some researchers are becoming businessmen. Mashelkar's provocative slogan, "I want to be known as the first CEO of CSIR Inc" is one side of the coin, while Reddy's ambi­tion to be the first Indian to develop a new drug, is the other side.

The ball has been set rolling. We have not even touched on the developments in other knowledge-based services like edu­cation, training, health care, market research, etc, which deserve a story to themselves.
It is already clear to many that a rupee put in well-directed technology development yields many mo' in a fairly short period of time.

Every nation in the newly ­industrialised fold used cheap labour as the first competitive advantage to climb up the lad­der, and are now looking for other niches like quality, basic research and specialisation. For example, Japan has concen­trated on automobiles and con­sumer electronics, Taiwan on personal computers, and South Korea on heavy ~engineering. India can use knowledge-based businesses like specialty chem­icals, catalysts, engineering design, telecom and computer software, aerospace technology, biotech etc as its core competence to leapfrog into the industrialised league.

These new technologies have also evolved in the last decade. They can be characterised as technologies in which size does not matter - an innovator can go ahead with a good idea even if not backed by a giant organisation. To that extent, the new technologies have a decentralising effect and are allowing newcomers an entry. Knowledge-based entrepreneurs have identified the opportunity and grabbed it.

A manufacturing advantage based solely on cheap labour hardly lasts long. One soon finds a country that can manu­facture even more cheaply. But it is diffi­cult to erode an advantage based on knowledge. What we need is far-sighted entrepreneurs and researchers, and it is heartening to see that India has them in plenty. And they are not restricted to the traditional trading -money lending - manu­facturing families that have dominated the business scene till today.


The new wealth

If one is to make money out of knowl­edge, it should first be acknowledged as property. In the world of Indian R&D today, there are no two opinions on intel­lectual property and the need for its pro­tection. There is a mad rush towards filing applications for international patents, despite the fact that a US patent costs thousands of dollars to file and to main­tain annually. Cipla's Dr Yusuf Hamied, who doggedly cautions against changing the Indian intellectual prop­erty rights (IPR) regime, is an exception. But then, Hamied, while advocating the exploitation of various clauses within the WTO framework to make sure that drugs will be available in India at affordable prices, has recently got two interna­tional patents himself.

Patent literacy is now on top of the agenda; Indian researchers are learning how to read and write patents. Dr R.A. Mashelkar, director-general of the CSIR, in fact, wants to launch a patent literacy mission. Says N.R. Subbaram, head of CSIR'S patent division and one of the few experts in India, on international technology patent­ing, "Many are realising that one should read patents before beginning work, so that the novelty of the line of work pro­posed is clear. You might even get a clue as to which line to pursue. At the same time, one should learn to write patents so that not much is disclosed."

However, even before the IPR regime is changed by law, both Indian researchers and foreign companies have recently formed working relationships, respecting both a high degree of confi­dentiality and exclusivity in joint research. While it is easy for private companies to form such relationships (as many are doing), it took an agonising time for the CSIR labs to do the same. Can a publicly-funded R&D organisation act as an arm of corporate R&D, was the question. Ranbaxy's Dr Parvinder Singh, whose corporate mission is to transform Ranbaxy into a 'research-dri­ven global pharmaceutical company', comments, "Two years back when we proposed a joint drug development pro­gramme with a CSIR lab with exclusive rights to us, it was rejected. Now that Mashelkar has come to head CSIR, things will change very fast."

R A Mashelkar--Catalyst for Change

Business India, June 28-July 11, 1999

CEO of CSIR Inc

Under his leadership, 40-odd laboratories of the Council of Scientific and Industrial Research have not only undergone a culture change, but are showing what proactive management is all about. In the general atmosphere of despair, R.A. Mashelkar, FRS, has shown that one man can, even now, make a difference

Shivanand Kanavi

"Asking scientists to do industrial research is close to prostitution!" the director of a CSIR laboratory declared at a press conference 10 years ago.

last year CSIR labs earned Rs125 crore from industry.

In 1989 the National Chemical Laboratory, Pune, a highly respected R&D centre worldwide, did not own a single US patent.

last year alone CSIR filed about 100 international patents. NCL was at the vanguard.


Tables, charts and computer graphics are eloquent about the money earned from industry, foreign clients contracted, interna­tional patents filed, and so on, by the Council of Scientific and Industrial Research (CSIR). The quantitative change becomes obvious at a glance. But they do not tell the story, the process. Neither do they indicate if, at some point, this quantitative change has led to a change in quality, a change in culture.

Talking about "managing change" is fashionable. A large number of books displayed prominently at airport bookstores for the benefit of travelling businessmen and executives give ready aphorisms on "change management", "managing chaos", and so on. However, they all read like fairy tales, possible only in enabling environments in distant developed economies. They make you feel good for some time, fill you with enthusi­asm to tryout the easily digestible, encapsulated pop wisdom. But in no time the ifs and buts butt in. And despair deepens as one re-enters real­ity before the flight of fancy ends. But, of course, one rationalises and conver­sations end with familiar justifica­tions: "In a country like India ... "

Under these conditions, the CSIR turnaround has generated consider­able optimism in India's science and technology circles, and increas­ingly among businessmen too. It is an excellent example of change manage­ment, in a 50-year-old institution, which could have fossilised and crum­bled in the post-1991 environment. Business India visited nine CSIR labora­tories in Lucknow, Jammu, Goa, Hyderabad, Bangalore, Pune, and Dehradun, and talked extensively to businessmen and scientists to bring you this story.

Dr Raghunath A. Mashelkar, direc­tor-general of CSIR, speaks with great enthusiasm and optimism in public and in private that India will be one of the hubs of the future global knowl­edge economy. He showers the audi­ence with a host of catchy slogans. If you didn't know that the man was a distinguished scientist with a Fellow­ship of the Royal Society (an honour shared by only 35 Indian scientists and engineers in over three centuries), you could easily mistake him for a tacky copywriter. "At times it looks like he is overselling a bit, but look at his accomplishments in turning around CSIR," says Prof M.M. Sharma FRS, who was also his teacher at the University Department of Chemical Technology, Mumbai. "Change is always a product of proactive leader­ship and in India, where personalities matter so much, leadership is even more crucial," he adds. Naturally the story of change in CSIR is the story of Mashelkar's leadership.

"At a recent meet on R&D organised by an MNC he lifted up everybody's spirits, including that of international participants, with his vision," says Dr pradip, a well-known materials scien­tist from Tata Consultancy Services. "From anyone else it would have sounded like bombast, but Mashelkar has a good track record and there is absolute conviction in what he says. And that enables him to carry others with him."

Mashelkar understands the use of oft-repeated slogans and symbolism very well. He started his campaign to globalise Indian R&D and thereby elevate its quality and competitive­ness during his tenure as director of National Chemical Laboratory (NCL), Pune. Though CSIR labs are not supposed to concentrate on pure science, a number of them have been producing a large number of high- quality scientific papers. For example, NCL alone used to produce over 250 papers (now close to 350), while the whole of Indonesia produces about 70. Mashelkar however knew that global knowledge markets do not pay much attention to research papers but they do if you have patents in critical areas.

"At times it looks like Mashelkar is overselling a bit, but his accom­plishments in turning around CSIR, are impressive" says Prof M.M. Sharma FRS, who was his teacher.

So he convinced his colleagues at NCL that, while the output of the labora­tory in terms of science was excellent, it had not staked its claim in technol­ogy markets with patents. In fact, NCL then did not have a single US patent.

Mashelkar advised his colleagues, many of them distinguished scientists on their own standing, to scan patent databases before they started a research project, to make sure that they weren't reinventing the wheel. He also asked them to scan their papers for any patentable (novel, non-­obvious, commercially exploitable) result and file a patent before sending it for publication. It was hard initially, because it is research publications that bring peer recognition in science and not patents. So he replaced the old adage in science "publish or perish" with a new slogan "patent, publish, and prosper". He tom-tommed it constantly and today it has caught on all over CSIR (see box). A new body NCL Research Foundation funded through donations gave away medallions to all US patent holders every year. A healthy competitive spirit developed, especially between the catalysis and polymer groups headed by two eminent scientists, Dr Paul Ratnasamy and Dr S. Sivram respectively. A few specialists were trained in writing patents. After all, patent-writing is an art where you give away the least amount of information while at the same time covering the flanks of your work so that others cannot easily bypass your patent. In the last five years CSIR has filed about 350 interna­tional patents and NCL is the leader in US patent applications from India.

Today Mashelkar is spearheading a campaign for patent literacy. "I compliment CSIR for creating an intel­lectual climate supportive of the early passage of the bill to amend the Patents Act," said Prime Minister Atal Behari Vajpayee, on 15 January 1999.

"While the team at the helm of CSIR has helped realise the goal, he as an individual has led them as one from within them. This approach makes all the difference,” comments Mukesh Ambani, Reliance Industries

That is a handsome compliment because only five years back there was deep opposition to amending the law both in Parliament and outside. A key factor that influenced this turnaround was CSIR'S victory in the turmeric case. At one stroke the turmeric case showed that the IPR system works if backed by proper documentation. That those advocating a change in patent laws are not necessarily "agents of multina­tionals". That urgent steps should be taken to spread patent literacy in scientific and business circles. That it is a two-way street and India's knowl­edge base, be it traditional or modern, requires protection too. At once Mashelkar became a swashbuckling national hero who" rescued haldi from Western biopirates".

Today the battle over patenting has been won. For example, two years back a brilliant young molecular biologist from the Centre for Cellular and Mole­cular Biology, Hyderabad, came to Mashelkar for advice. He had patented an innovation, published the paper, and a US biotech company had come to negotiate the commercial terms for exploiting his patent. Mashelkar was overjoyed because the same scientist in 1995 had argued passionately and boldly about keeping science away from commerce.

However, Mashelkar is not compla­cent. "Demands change as time moves on. Now, there will be a greater empha­sis on exploitation of patents, and income generated from them - and not merely on the number of patents." Even forward-looking entrepreneurs like Parvinder Singh and Anji Reddy hail him for his work in this regard.

"In fact one of his greatest contribu­tions to CSIR is to inculcate the culture of patenting. Many years before we filed patents from our research founda­tion, it was NCL which was at the fore­front of filing process patents licensing to big multinationals like Akzo. He was a kind of inspiration for me and always used to say that we should stand in the forefront in technology and file patents in developed countries. To that extent, I must admit that he has not only inspired scientists in CSIR to create wealth by harnessing intellectual prop­erty, but was also inspiration for all of us in the industry," says Reddy.

"To evaluate the contribution of Dr Mashelkar you have to look at the goals he had set for CSIR in 1996 to be achieved by the year 2001. I would say Mashelkar has set up very high stan­dards to achieve, but he is well on his way to meeting some of these," says Singh. "He has increased the awareness in the Indian scientific community towards patent-worthy innovations. He has also successfully defended our traditional intellectual wealth in the challenge to patents filed abroad," adds he.

Spreading its wings
Patents, however, are really a small part of a larger goal of turning India into a global R&D platform. But even that has required a change in the mindset. CSIR has had an open culture. So nothing passes through just because the director-general says so. In fact, individual directors have a lot of power and can act as satraps. It is extremely important for the top man to carry his 40 directors with him. What does globalising CSIR mean? Should publicly funded Indian R&D become an adjunct of multinational corporate R&D? While celebrating NCL'S golden jubilee earlier this year, several senior scientists who have retired from CSIR -like B.D. Tilak, L.K. Doreswamy, and A. V. Ramarao ­expressed the fear that NCL might become "a lab on rent" for MNCS

Poly-Mashelkar
Maharashtrians are prone to add kar to a profession, a characteristic, or a place and derive a surname out of it. So, recently, Mashelkar has been nicknamed Patentkar, Polymerkar, and so on by his compatriots. However, these names are inadequate as they reflect only some facets . of a multifaceted personality. His enthusi­asm for India and its future is infectious. In fact, only his track record and utter convic­tion in it makes it genuine rather than c1iche­ridden hyperbole. "How can I not be an optimist? I am what I am because of India," he says to sceptics. The truth in those words only becomes clear when you look at his childhood and the struggle that he has gone through to reach the present heights.

Raghunath Anant Mashelkar was born on 1 January 1943 in Mashel a small village in south Goa. The lone child almost died of smallpox when he was a little over a year old. With no land and Mumbai beckoning with means of livelihood in the difficult postwar years, the family joined thousands of others from Konkan who migrated to the city. A couple of years later Mashelkar lost his father at the age of six. His barely literate mother, Anjanitai Mashelkar, brought up her son with great courage, grit, and hunger for education. She drove Mashelkar forward at decisive moments in his life, when he could have easily succumbed to the overwhelming odds and given up.

The family lived in a crowded one-room chawl, sharing it with other migrant fami­lies in Deshmukh Galli in Khetwadi near Girgaum. His maternal uncle got him admitted into West Khetwadi Upper Primary School, a Marathi-medium munic­ipal school, where he was a consistent topper. When it was time for him to enter senior school (Std VIII), the high schools nearby needed Rs21 as an entrance fee. His mother, who was trying to provide for the family by doing all kinds of odd jobs in nearby households, could not rustle up the amount. It looked like curtains for Mashelkar's acade­mic career. But she didn't give up and finally managed to borrow it from a friend, who was also working as a household help. Mashelkar often publicly recounts that struggle for Rs21 . But by then a month had passed and admis­sions to many schools had closed. He eventu­ally joined Union High School in Girgaum.

"Poverty is not an abstraction or a statis­tic for me," says Mashelkar. "I walked bare­foot till I was 12. I remember that when we had weekly tests in school on Saturdays, and we had to carry our own answer paper, which cost 3 paise. One had to always wonder where that money would come from the next week." For this reason he almost gave up his studies at Std XI. Just then the Gomanthak Maratha Samaj came to his assistance with a modest scholarship.

Unable to have either privacy or space in the chawl, he studied for his matriculation under the streetlights of Chowpatty. The dazzling grades he got at the Std XII exams despite all the odds, standing 11 th in the board, were the turning point in his academic life. Not because of the marks themselves - after all, he was always used to excelling at studies - but in terms of the number of people who suddenly came forward to help him pursue his education further. That is how he did not have a partic­ularly difficult time getting Rs200 for his college admis­sion. Meanwhile, the Sir Dorab Tata Trust selected him for their coveted scholarship and considerably reduced his hardship. He fondly remembers that the trust's personnel even helped him improve his English language skills, public speaking, and so on. When he received the JRD Tata Award for corporate leadership recently, Mashelkar publicly expressed his gratitude to the Tata Trust. "Dr Mashelkar's vast knowl­edge and standing is deceptively hidden by his great humility," says Ratan Tata.

After two years at Jaihind College, Mashelkar chose to enter the relatively new field of chemical engineering at Bombay University's Department of Chemical Tech­nology. When he finished his BChem with flying colours and wanted to take up a job to ease the financial situation at home, his mother asked him a simple question: "What is the next degree in this subject?" And thus Mashelkar started and finished one of the quickest PhDs in chemical engineering. He was offered fellowships at some universities in North America, but a young professor called Manmohan Sharma, who had just returned after a brilliant innings at Cambridge, persuaded him to stay. That was the beginning of a legendary guru-shishya relationship. Today in chemical engineering Sharma and Mashelkar's names are always taken in the same breath.
After his PhD his mother encouraged him to go abroad and excel in his chosen field and there followed an illustrious career at the University of Salford, UK, where he estab­lished a first-rate group in polymer engineer­ing and carried out pioneering work in the field. He also came out of his guru's shadows in mass transfer and charted a new path. A few years back he presented a new paradigm at his Dankwerts' Memorial Lecture at Cambridge, where he championed "border­less chemical engineering". In short, he pointed out that future breakthroughs are going to come through sharing of ideas and techniques between various disciplines. "Borderless", a pet word in his vocabulary, also summarises his personality very well.

In 1975 Y. Nayudamma, the then direc­tor-general of CSIR who had a brief from Mrs Gandhi to entice some of the best Indian brains working abroad, sold him the idea of coming back to India and joining the National Chemical Laboratory. And thus started an intense 23-year commitment to CSIR and another chapter in his career as a polymer scientist, R&D manager, and vision­ary leader. It eventually won him widespread international recognition, including the pres­tigious Fellowship of the Royal Society. Unfortunately, health reasons kept that gritty woman, Anjanitai Mashelkar, away from the elaborate induction ceremony in London where Mashelkar signed the register of the Royal Society, which still carries the much­revered (and hence laminated) page 9 that carries the signature of Isaac Newton.


The whole debate would not have taken place 10 years ago. After all, NCL'S external earnings in hard currency were negligible then. Today it earns about $4 million annually, which constitutes 80 per cent of its industrial earnings. It has successfully networked with a number of global corporations. Several other labs are following NCL'S example and globalis­ing their clientele (see table). "Though one has to carefully allocate resources between contract research and origi­nal work, criticism that NCL is selling R&D cheaply to MNCS at the Indian taxpayers' expense is unjustified. NCL has no more than 10 foreign clients; its Indian clients number over 100! It is a different issue that Indian industry, which is still busy reverse-engineer­ing, may not be able to absorb some of the sophisticated work done in NCL in polymers and catalysis. But that's not its fault. Moreover, NCL has never sold R&D by 'man-hours' - only by 'brain hours', counters Mashelkar.

"When a GE team came to NCL to negotiate some pilot projects in 1992-93 they had come via Russia. When they saw the sum quoted by NCL for contract research they said that they could buy a whole R&D lab in Russia for that kind of money. I said, 'Go ahead and buy a Russian lab but come back to NCL if you want world­ class quality.' GE was finally convinced and, since then, has not looked back. In fact, NCL charges foreign clients at least five times what it does Indian clients. So I do believe that, without outpricing ourselves, we are getting outstanding results," he adds.

Cutting-edge work for foreign clients has many intangible benefits. It raises the quality of research of the whole lab. For example, GE ran its pres­tigious Six Sigma training course for NCL. Several scientists got training that they would otherwise never have got. Even contract research for foreign clients requires the use of cutting-edge biology and chemistry - no 'me too' products and processes. Time, quality, price, and delivery are all internation­ally benchmarked. CSlR is creating a cadre of top-class professionals who will serve Indian industry with highest level of skills. Ashok Ganguli, former R&D director of Unilever plc and current chairman of ICI India, completely supports Mashelkar's plan to globalise Indian R&D.

"I would say Dr Mashelkar has set up very high standards to achieve, but he is well on his way to meeting some of these," says Dr Parvindar Singh, Ranbaxy Laboratories

Spreading its wings worldwide has not been easy. Mashelkar has taken extra pains to achieve this. When he took over as the youngest director of NCL 10 years ago, he said in his inau­gural speech to the staff that his ambi­tion was to convert it into the "International Chemical Laboratory". As usual, he started turning the catchy slogan into a reality by hard-selling NCL to a number of multinationals. He has since used everything at his command to market CSlR globally, including his own impeccable scien­tific credentials. For example, in 1992, he visited GE'S corporate R&D at Schenectady in upstate New York to deliver a scientific talk on polymer engineering. He had, however, asked his contacts at GE to gather some busi­ness development people as well. The seminar soon became a presentation of NCL'S capabilities, including a pitch on a US patent obtained by NCL in "solid state poly-condensation" - a topic of interest to GE, which is the world leader in polycarbonates.

The one-hour seminar stretched to two. It then led to an extended lunch, where more executives joined. The lunch was followed by meetings with senior vps in the afternoon. And in the evening he had to change his flight plans for more serious talks. One of the vp’s exclaimed, "You speak our (corpo­rate) language. Nobody in publicly funded labs in the US seems to do so." Today GE'S corporate R&D considers its relationship with NCL as its most successful external relationship. It is a partnership in joint technology devel­opment and not "a lab on rent.”

The time is ripe to strike more such partnerships. Globally R&D and innovation have become a high-risk game for all high-technology corpora­tions. R&D is becoming very expensive and is yielding diminishing returns when carried out under a single roof. On the other hand, without innova­tion and new technology, one can lose one's business position very quickly. This dilemma has led to networking, outsourcing, strategic alliances, and partnerships in R&D. None of the Indian labs is in a position to develop a full-scale globally competitive tech­nology by itself and then license it worldwide. Partnerships, where they assume a junior position initially, can help them catch up with the rest of the world. So it is indeed a win-­win situation. After GE several other MNCS like DuPont and Smith Kline Beecham have come to various CSIR for R&D tie-ups.

Soon after he was appointed director-­general in 1995, Mashelkar said in an interview, "I would like to be known as the first CEO of CSIR mc." In effect, he was voicing his intense desire to turn the network of 40 disparate laborato­ries spread all over the country into a highly focused, goal-oriented, well ­networked organisation doing "research as business" and in the most businesslike manner. Within a short period of four years he has achieved his goal to a great extent.

"He always used to say that we should stand in the forefront of technology and file patents in developed countries. I must admit that he has not only inspired scientists in CSIR to create wealth by harnessing intellectual prop­erty, but also all of us in the indus­try," says Dr Anji Reddy

The sweeping economic changes in the 1990s have hit publicly funded R&D institutions globally. Budget cuts, scrambling for funds from industry, corporatisation, privatisation, and even closure have been the night­mares of any R&D manager in the world. Organisations in the UK, South Africa, New Zealand, and Australia which are similar in structure to CSIR have had a tumultuous decade. Even corporate R&D is in great turmoil worldwide. In India in the last few years, Hoechst (Hoechst Marion Rous­sel), Hindustan Lever, and Ciba-Geigy (Novartis) have either closed down their R&D labs or sold them. In this context one could safely say that CSIR is introducing cultural changes, which are pioneering not only in India but also globally.

The new businesslike approach is palpable. For example, annual reports of government institutions are not particularly known either for readabil­ity or transparency. The bulk of one report is repeated the next year, thereby making it opaque for anyone to figure out what actually was done in the current year that was different from last year. The annual report of the Indian Institute of Petroleum, Dehradun, reads differently. The achievements of the last year are unambiguously stated with clear graphics. "We believe in 'delta reports' (delta is the mathematical symbol for incremental change)", says T.S.R. Prasad Rao who was the director of the lab till recently.

In another instance it was common in the 1970s and 1980s for many a science chieftain to announce a "breakthrough" for every two-bit import substitution done. If all the claims made by our government-run R&D laboratories about breakthroughs in technology were true, then India by now would have been an economic and technological superpower. Today Paul Ratnasamy, director of NCL and an internationally recognised author­ity on catalysis, is tight-lipped about the work done by his scientists even after they have got US patents.

Incidentally, this approach has not led to a decrease in science at CSIR. In fact, the quality has gone up. Accord­ing to an internal study, even though the number of scientific papers published between 1995 and 1998 remained more or less the same (1,500-1,600 every year), the citation index, which shows how many others are quoting ones paper internation­ally, has gone up by 60 per cent in the same period.

"Dr Mashelkar has brought about a new direction to the management of scientific institutions in India by making their research user oriented with economic benefits. This is path-­breaking. While the team at the helm of CSIR has helped realise the goal, he as an individual has led them as one from within them. This approach makes all the difference," comments Mukesh Ambani.

Molecular hunt
CSIR is quietly starting an ambitious drug discovery programme that capi­talises on the rich biodiversity and millen­nia-old traditional systems of medicine, using the most modern equipment and methods that are leagues ahead of what Indian industry is currently equipped with. Today CSIR has a large number of laborato­ries specialising in chemistry and biology. Moreover, out of the 13 new drugs discov­ered in the last 50 years in India, 10 have resulted from the efforts of CSIR labs, thereby generating a certain level of confi­dence. The bane of CSIR labs however, has been lack of networking and synergising among themselves. In the past many a director has treated his lab as a fiefdom in itself and there have been cases of serious internecine rivalry leading to fragmenta­tion of skills and replication of facilities.

Now 20 CSIR labs spread allover India are being networked for new drug discov­ery. Others outside the CSIR fold have also been co-opted. One example is Arya Vaidya Shala at Kottakkal, Kerala, which is well known for its expertise in Ayurveda. Simi­larly other traditional systems of herbal medicine like Siddha and Rasayana are also being explored. The rich biodiversity of India in terms of plants, fungi, bacteria, marine organisms, and insects are being systemati­cally scoured for novel molecules that might

If CSIR'S New Drug Discovery programme succeeds, it will be an example of success on a shoestring budget. After all, a leading phar­maceutical company like Glaxo-Wellcome spends more than 10 times CSIR'S entire budget for forty odd laboratories!

Sticking the neck out

Within months of becoming director-­general of CSIR in mid-199S, Mashelkar took an extraordinary step. He put down in black and white what he aimed to achieve by 2001 (see table), thereby making CSIR vulnerable to criticism if the goals were not met. In bureaucratic Delhi, where the watch­word is 'cover-your-back', this new secretary to the Government of India broke all rules and actually stuck his neck out! But he was not a general full of bluster without an army. In fact he set out to visit all the 40 labs within three months of taking over, a task not carried out by any recent DG in his entire term! Individual labs soon followed with their own concrete 2001 strategy statements.

CSIR knows that, in the current conditions, it has to fight for every rupee and dollar and see to it that its old clients keep coming back while new ones are added. That's why, in another pioneering move, it is conducting a meticulous customer satisfaction survey among its indus­trial clients to review its own weak­nesses. In an effort to improve systems, more than 10 labs have already received ISO 9000 certification.

It is clear that, while CSIR has defi­nitely moved forward on patenting, it is definitely lagging far behind in its targets for 2001 (see table). So, is Mashelkar ready to reset some of his targets? "The context decides the content. 'CSIR 2001' was visualised in the context of rapid anticipated indus­trial growth. That has not happened. In fact, industry has had a bad reces­sion in the last two years. This has affected us. Although the percentage of income from industry has risen to the desired figure, absolute figures have not been reached," he says.

"The foreign earnings are rising and have come close to $4 million, but any further rise will take time. For example, if the right manpower were available within CSIR, we would earn our targeted $40 million by 2001 from GE itself. So we are paying a lot of attention to recruiting bright young people. Moreover, once the drug research programme takes off, there will be considerable earnings at each milestone reached during drug development.

"Infrastructure projects and espe­cially a large number of bridges are going to be built in the country. CSIR labs like the Central Road Research Institute, the Central Building Research Institute, and SERC can form a consortium and offer design and other consul­tancy,” says Dr Vijay Gupchup.

"However, overemphasis on balancing the laboratory budget has to give way to balancing the national budget. For example, when CSIR brought 270 tanneries back into action in Tamil Nadu through green technologies, it saved an industry with a turnover of Rs2,000-crore-plus, but the direct benefit to CSIR in monetary terms was not even Rs5 crore. So far CSIR has been technology-centred. However, now we are launching a Leather Vision 2010 and driving the industry towards that. Similarly, CSIR will become the nucleus of future civil­ian aircraft industry. We have made a modest beginning with a Hansa licensed to Taneja Aerospace, and we are now taking up the 14-seater multi­purpose aircraft Saras. In less than a year from now, the first prototype will roll out. We are putting in our own money with HAL and Pratt & Whitney as partners. The same can be said about CSIR launching the IPR movement, protection of India's traditional knowl­edge base movement, and so on."

The road to the future

"Do you need all the 40 labs or should some non-performing ones be closed down?" That's a question Mashelkar is often asked. "I do not have 'non­performing assets' in the normal sense of the word. My assets are not plant and machinery. We might have a few non-performing brains. Though we need to be slim and trim, I do not think the answer is closing down labs. What we need to do first is provide leader­ship to the underperforming labs."

He illustrates his assertion with the example of the Central Mining Research Institute, in the badlands of Bihar, right in the midst of the Dhan­bad mafia. Five years ago it was at the bottom in all respects and could have easily been written off. A new director Dr B.B. Dhar came along and turned it around in five years. Today it is in the top 10 in terms of earnings from industry and recently won the CSIR technology award, beating better equipped engineering labs.

At a systemic level Mashelkar's emphasis is on networking, echoing Sun Micro Systems' by now famous declaration "the network is the computer, not individual servers and other components". Projects and new initiatives are being taken up which involve many labs. The New Drug Discovery Initiative is one such involving about 20 labs (see box: mole­cular hunt). Over 500 scientists are involved in searching for new molecules which can become drugs and agrochemicals. "Similarly, the National Metallurgical Laboratory, the National Aerospace Laboratory, the Central Mechanical Engineering Research Institute, and the Structural Engineering Research Centre (Chen­nai) put together have more expertise than any foreign consultant in the matter of residual life assessment of power plants," says Mashelkar.

"Infrastructure projects and espe­cially a large number of bridges are going to be built in the country. CSIR labs like the Central Road Research Institute, the Central Build­ing Research Institute, and SERC can fmm a consortium and offer design and other consultancy," says Dr Vijay Gupchup, a structural engineer and former Pro Vice Chancellor of Bombay University.

Die-hard optimist

He and his team are showing that science administration is not a cushy position for a retiring scientist; that it needs hardcore management skills. For the first time, after five decades of independent India R&D management has made its appearance as an organi­sational culture. It involves harmonis­ing short-term and long-term goals, and encouraging innovation and creativity, while insisting on deliver­ability and targets, handling tempera­mental scientists on the one hand and hard-nosed businessmen, bankers, and bureaucrats on the other. Natu­rally it surprised nobody when vice­ president Krishan Kant presented the JRD Tata Award for Corporate Leader­ship to Mashelkar in February 1999, even though earlier recipients had been businessmen and bankers: Aditya Birla, Deepak Parekh, and Narayana Murthy. It was a recognition of the fact that CSIR mc had arrived, along with its first CEO.

No wonder the Indian scientific community has chosen him to preside over the first Indian Science Congress of the new millennium, on 3 January 2000. There is no doubt that it will be different, because Mashelkar has left his indelible mark of optimism and businesslike approach on whatever he has taken up.

"I believe in the lilies-in-the-pond story. That is, we should look at the rate of change to see the future. Let us say that lilies double every day and there is one lily in a pond and it takes 30 days to fill the pond. Then on the 29th day the pond will be half full, on the 28th one-fourth full, on the 27th one-eighth full, on the 26th only one ­sixteenth full, and so on. But if you see the rate of growth then you will see that soon it will be full," he replies to his critics.

Managing change requires clear goals, lucid argumentation, empathy, doggedness, faith in your team, opti­mism, and the ability to enthuse others with your dreams and convert them into collective dreams. Mashelkar is doing just that. The boy who had stars in his eyes on the sands of Chowpatty is today filling others with his dream of an India that will be a significant player in global knowledge economics. In the prevailing gloom and cynicism he personifies hope.