The Joint Sector Days: When a German Giant bit the dust

Business Houses of the South by Sushila Ravindranath

Tamil Nadu Petroproducts Limited (TPL) is one of those pre-liberalisation projects which came up in Chennai during the height of import substitution times. It was promoted by the fertiliser giant SPIC as a joint venture with Tamil Nadu Industrial Development Corporation to manufacture Linear Alkyl Benzine (LAB), the raw material to manufacture detergents in 1991. As the detergent market was huge and growing, this was considered a sure winner.

The company did extremely well in its earlier years. It started paying dividends from the very first year and was considered a blue-chip company. Flush with funds, the firm started looking at diversification. Unfortunately, it got caught up in all kinds of controversies. The parent company SPIC was falling out with its partner, the Tamil Nadu government. The company’s managing director jumped ship to join its rival, Reliance. (To call Reliance a rival is perhaps laughable as Reliance’s scale of operations was huge; however, TPL did well as there was demand.) The firm also started coming under a great deal of scrutiny – SPIC and TPL were projects from the MGR, Jayalalithaa period and received much government support; but that changed once arch-rival Karunanidhi came back to power.

The controversies began with the appointment of chairmen for the joint sector companies. The new government did not want A.C. Muthiah, who was the chairman of these companies, to continue. He was replaced with a TIDCO-appointed chairman. In spite of all the changes in the top management, the LAB plant continued to do well. However, TPL had to think of new projects to avoid the steep taxation of the times. It tied up with Henkel of Germany for a joint venture to manufacture high-performance, environmentally safe, Zeolite-based detergents. Henkel had globally well-known brands, which sold very well in the countries it operated in. The investment was around Rs. 60 crores.

By all accounts, it would have been a good project as it also aimed at generating captive consumption of LAB. As it happened, TPL plunged into this project without having any experience in consumer marketing where MNCs like HLL, P&G, and other major competitors had well-established brands of detergents. The reason for taking this step was not illogical. Henkel had globally well-known brands, which did very well in the countries it operated in. However, in India the story was different. To start with, the plant was set up in Karaikal. It was not a great location for its products to be distributed all over the country. Henkel in Europe was used to outsourcing its manufacturing. It is difficult to understand why it did not follow this method in India. It is said that Henkel wanted to be sure of quality and so it wanted a single plant. To distribute products all over India from Karaikal was not only expensive but was also a logistical nightmare. It ate into the margins. The promoters did not realise that marketing expenses were going to be huge.

There were many other blunders as well. The Indian managers had to get approval for everything from Germany. This was time-consuming and quick decisions when required could not be taken. SPIC had no experience in consumer marketing and the German collaborator had no clue about marketing and distribution in India.

Henkel wanted to control advertising as well which resulted in some disastrous decisions. A friend in the advertising industry recalls, “They were choosing tanned models not understanding that Indians like fair skin.” The story ended with Jyothy Laboratories of Gujarat acquiring Henkel India in 2011 for a measly Rs 685 crore. It took over more than three brands – Henko (detergent), Pril (utensil cleaner) and Margo (soap). Jyothy also absorbed Henkel’s accumulated losses of Rs. 600 crore.

Tamil Nadu no longer has a major detergent manufacturer.

Please follow and like us: