3M is excited about India. The company, which has become a byword for innovation and the subject of B-school case studies world over, is betting big on its prospects here. That much was clear when Inge Thulin, 3M’s Executive Vice-President in charge of international operations, visited India last month. Addressing employees, Thulin said the company would invest an additional Rs 60 crore to set up a second R&D facility in the country. There was excitement across the room. One man, in particular, could barely conceal his excitement and performed a jig. Ashish Khandpur, the technical brain spearheading 3M’s research initiatives in India and a man with 10 patents to his name, knew it wasn’t just about the extra dollars at his disposal. He knew the implications were far greater.

3M India sells as many as 5,000 products. Apart from the more visible products like Post-it notes and Scotch Brite scrubbers, the portfolio includes road signages, car graphics, corrosion-protection products, industrial adhesives, stethoscopes, surgical gloves as well as a host of automobile-care solutions. Many of these are products customised for India rather than made in India. Now, 3M is looking to change that. Thulin’s announcement heralded a paradigm shift. It meant that India had moved up the 3M value chain. The focus will now shift from customising global products to stepping up made-in-India innovations.

This investment (Rs 60 crore) is a clear statement of 3M’s commitment to India and our desire to expand the company’s footprint in this country.Ajay Nanavati, Managing Director, 3M India

To understand just how big the implications of this are, one needs to look at 3M’s global expansion story. After making a humble beginning as the Minnesota Mining & Manufacturing company over a hundred years ago, the company began expanding internationally from the 1950s.

Today, it has 68 global subsidiaries, across all the continents, earning $16 billion or 64% of its total revenue. 3M came to India much later, in 1987, but has still had enough time to establish itself firmly here. However, Indian operations make up only a small part of the company’s global pie. Despite being in the country for nearly two decades, it is still mostly sourcing its international products and selling them in India after adapting them to local market conditions.

By adding more and more made-in India products to its portfolio, the Indian outfit of the Minnesota-headquartered company is hoping to join an elite club of 3M global subsidiaries in Japan, China, Germany, France, Brazil and the UK that have already set sail on the path to becoming self-sufficient units.

Going Local

Clearly, the new focus at 3M India’s plush office at UB City, Bangalore’s snazziest corporate address, is about building innovative products for the local market from the ground up. Ajay Nanavati, Khandpur’s boss, and Managing Director of 3M India, calls the shift a ‘made in India, for India’ strategy. “This investment is a clear statement of 3M’s commitment to India and our desire to expand our footprint in this country,” he says.

However, Nanavati is quick to add that international sourcing of products will not stop. “Given the breadth of 3M’s global portfolio (50,000-plus products) it’s not cost-effective for every subsidiary to make everything. But yes, the idea is to expand local innovation and bring down the degree of international sourcing,” he clarifies.

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In 2008, approximately 25-30% of 3M India’s revenues of Rs 742.65 crore came from products that were either adapted to suit Indian market conditions or designed entirely in India. Nanavati refuses to give a break-up, but it’s safe to assume the former far outstrips the latter. After all, new-product innovation is a lot about patents, and until recently, the India lab had no patents to its credit.

Going forward, the plan is to have at least half the revenue coming from new products. Thulin puts this in perspective when he says: “Our growth strategy for India is to accelerate development of products in India, for India, through cutting-edge R&D capability. We also aim to provide development opportunities for local talent.”

The best part is that the researchers won’t have to start from scratch. 3M has a huge technology bucket that they can dip into while coming up with new ideas. Internally called platforms, these are technologies that the company has developed and perfected over decades. Each platform by itself, or in combination with others, can create a range of products cutting across multiple markets and product lines. “We have 45 such technology platforms—that’s how much technology we’re sitting on and continue to develop. The permutations and combinations of these technologies open up huge opportunities,” adds Khandpur.

A Decent Start

The India lab has already made some headway in developing innovative products. Over the last two years, Khandpur and his team have engineered a handful of them—products that were built in India from concept to completion. In 2009, the India lab filed seven patents.

These products are interesting in themselves. Take, for instance, the dust-free sander, which is sold to small garages that undertake automobile repairs. For body-repair post an accident, mechanics usually scrape the affected area, apply putty, sand the uneven edges and then paint it. The problem is that this process of scraping and sanding creates a lot of dust. Large service centres install a central vacuum system to deal with this problem, but smaller ones can’t afford it. 3M’s cheap dust-free sander is the answer to their problem.

Khandpur is quick to point out that customer-centricity is the key to such product development. In fact, 3M’s philosophy of innovation is all about combing research with customer needs to come up with practical solutions.

“Such ideas germinate only when you have an in-depth understanding of a customer’s pain-points,” he adds. This is why 20% of 3M India’s 90-strong R&D team is based not in Bangalore but scattered across the country. By working in close proximity with customers, 3M’s scientists are able to understand the nuances of a particular market and design products that are in sync with the realities on the ground.

Another locally patented product is the reflective median marker, which ensures better visibility of road medians at night. The 3M marker is long lasting. More importantly, it is sturdy enough to withstand vandalism and theft—both common problems earlier. When researchers in the lab designed the product it had a plastic body, but a crucial input from the technical folks on the ground led to a complete overhaul of the design. “They told us the product could be easily peeled off and melted to make a quick buck. This input was used to change the material into something that would not only be sturdy but of little use to thieves,” recalls Khandpur.

Over the last two-three years, even pure researchers are being encouraged to spend time with customers—the idea is to observe a day in the life of the customer and use the knowledge thus gained to think about innovations that make life simple for the customer.

Being close to customers is absolutely important. Ideas germinate only when you have an in-depth understanding of their pain-points.Ashish Khandpur, Technical Brain, 3M

Emerging Realities

That India will play a crucial role in 3M globally is evident from the consistent investments the parent has made in the country over the past few years. 3M India’s gross block (an indicator of a company’s long-term commitment), which remained at Rs 50-70 crore levels until fiscal year 2005, has increased steadily and stood at Rs 170 crore at the end of fiscal 2008. With mature economies slowing down, the company is cognisant of the fact that growth in the overseas market (emerging economies in particular) will be the driving force in the years to come. This is where the ‘made in India, for India’ strategy is expected to come in handy. Over the last five years, 3M India’s revenues have grown at a CAGR of 27%. Net profit has grown 19%.

Its 2009 performance, however, has been impacted by the economic slowdown (y-o-y revenue slipped to single digits). The first-quarter (January-March 2009) was particularly bad, but things have picked up in the second and third quarters.

In some ways, the India focus marks the coming of age of the country in the 3M universe. The company’s entry into India, through a joint venture with the Yash Birla group, was a quiet one, typical of its toe-in the-water global strategy. As a rule, 3M does not commit large initial investments in any global subsidiary. Operations kick off by importing relevant products and developing the market. The next stage of the evolution process involves creating a technical service centre (kind of a mini-R&D lab) to fine-tune the product and customise it to specific customer needs. A small manufacturing facility is also set up to produce these locally-adapted products.

Local manufacturing gets beefed only when a product achieves a certain volume. The next stage involves enhancing development capabilities to customise products to such an extent that new applications can be found for them. Then comes the phase where research capabilities are expanded to design completely new products from scratch. Patents form an important part of this stage of the evolutionary process. The last stage involves investment in basic research or technology development. Nanavati says it can take up to 15-20 years to reach critical mass in a big market. It’s taken India a little longer to get there, but it now seems ready for take off. “If we measure R&D capabilities on a scale of 1 to 7, where 1 is technical support and 7 is basic research, India is now at level 4,” he adds. “After the new R&D capabilities kick in, we’ll move up to level 5.”

Indeed, the company looks set to take a lot of things up several levels in India.