Russian companies in India need to “play by the local rules” - SIBUR India CEO

A butyl rubber plant will be built near the Indian city of Jamnagar, under a joint venture between Reliance Industries Limited  and SIBUR, Russia‘s largest petrochemical company. While Reliance is responsible for constructing the plant, SIBUR is providing the technology and will launch the plant and train Indian engineers and workers.  

Evgeny Griva, CEO of SIBUR Petrochemical India talks to RIR about the prospects in cooperation in this key area.

At what stage is the project to set up petrochemical production in India presently at? And when will the enterprise be put into operation?

The purpose of setting up a joint venture with Reliance is to build a new complex in India for the production of butyl rubber with a capacity of 100,000 metric tonnes per year. The design and procurement phases are underway. The timeframe for bringing the plant on stream will be announced when the design stage is complete.

SIBUR pioneering expansion to India

What slice of the market in India and Southeast Asia are you planning to capture with this Indian project? What products will you be offering?

There are a handful of global butyl rubber manufacturers in the Indian market, but they all lack our main competitive advantage: proximity to the consumer. We expect that the lower logistics costs, plus the support of India's largest company, Reliance Industries, will enable our joint venture to secure leading positions in the Indian butyl rubber market in the very first year of production.

What Russian technologies will SIBUR bring to India?

SIBUR will provide technologies for the polymerization and separation of butyl rubber, and be responsible for the basic design of the new complex.

Where will the raw materials come from?

Reliance will provide the entire necessary infrastructure for the JV in line with international standards, and will supply the new enterprises with raw materials from its site in Jamnagar.

Reliance imports primary oil for its facilities from the Middle East, since the petrochemical industries of India and part of Southeast Asia are largely fed with imports.

What are the main trends in the Indian petrochemical industry at the moment?

We believe that the rapid growth of India's GDP will hike demand for petrochemical products. Per capita consumption of polyolefin in India is significantly lower than in Southeast Asia, not to mention Western Europe or North America. This gap creates huge potential for growth as standards of living and consumption rise.

Of particular note is the expected rapid growth of tire production in India (8-10 percent per year, as estimated by ICRA), which will accelerate the development of the country's synthetic rubber industry.

Why did SIBUR choose India for its push into Southeast Asia?

The Indian petrochemical market is one of the most attractive in Asia due to the significant investments in infrastructure stimulating demand for products and the rapid development of local labour resources. Moreover, exporting to India has always been difficult because of the remoteness of its consumers. The logistics were costly and the domestic market competition strong. Hydrocarbon development in India is relatively backward. And the country has practically no resources of its own for the production of synthetic rubbers. Russia, on the other hand, has traditionally had a competitive advantage in the production of synthetic rubbers.

Indo-Russian cooperation

This JV creates good growth prospects for both SIBUR and Reliance. SIBUR's unique technologies and vast engineering experience in butyl rubber, combined with Reliance's natural resources and understanding of the Asian market, will allow the JV to top the synthetic rubber segment not only in India, but in other Asian countries too. In addition, SIBUR is equally interested in receiving dividends from the production asset and monetizing its proprietary technologies. As part of the JV with Reliance, SIBUR is acting as a vendor of proprietary technology for rubber production. Over the course of a fixed period, the company will receive royalties for its use. Moreover, the company is set to become the owner (25.1 percent) of the JV in India, and will bear the cost of establishing the asset, and receive dividends from its subsequent operation, in proportion to its stake.

SIBUR also has its eye on other projects in the Asian rubber market. A similar project is already being implemented with the Chinese. A JV has been set up on the basis of the Krasnoyarsk synthetic rubber plant to supply the Chinese market, and a JV in Shanghai is also on the table.

How do you rate your experience of creating a subsidiary in India? What unexpected nuances did you encounter?

Such experience is certainly interesting and difficult to compare with analogous processes in Russia, the U.S., and Europe. Opening a business here is a complex process for any company unfamiliar with Eastern traditions and realities. First of all, you need to gear up for a bureaucratic minefield, with each state having its own procedures and specifics. From a legal perspective, I would recommend relying on the representative offices of foreign companies in India with highly qualified specialists who know the local market, yet operate according to standards that are closer to home.

Russian experience — and SIBUR's firsthand knowledge — of doing business in India shows that the risks are highest when you act alone, or when your partner lacks a reputation as a local player or is not influential enough. In that respect, we are in a win-win situation: our partner has an impeccable business reputation and is able to resolve the legal and administrative processes, registration procedures, and other issues through its influence in business circles and government structures. In other words, it is the ideal way to enter the local market — through a JV focused on the real needs of the local market (technology or products), backed up by a powerful and influential Indian partner.

That is if you look at the issue globally. As for private aspects that seem unusual or force a rethink in one's approach, again it's down to the local business culture. Even Western-educated Indians preserve certain elements of their native business culture which you just have to get used to. For example, it is considered acceptable to be late for an appointment by up to an hour. Indians consider it impossible and insulting to say "no" to a partner. That means you can be left expecting to continue the dialogue after a meeting with Indian partners. They may have told you to consider the issue more deeply (with no mention of dates or names), but for them there is no prospects of furthering the project\dialogue. Russians can be baffled by the abundance of presidents, vice presidents, and senior vice presidents involved in the dialogue. Don't be fooled into thinking that all these high-ranking officials will reach a prompt decision. Usually the coordination process involves many people, but you have to seek out the one who makes the final decision. Astrological forecasts also play a role. At the very highest level, the date for launching a plant or opening a business often takes astrology into account.

Generally speaking, India demands a careful search to find your niche. The Indian market is growing, and so too are the middle class and, as a consequence, consumption. There are areas in industry and the service sector that are wholly un-catered to. But that often dupes hopeful newcomers here, because Indian society is extremely conservative, and the number of people tuned into Western standards, in absolute numbers, is not so great. So if you notice, for example, that in India there are no Russian restaurants, keep in mind that any attempt to open one is likely doomed to failure, since Indians just do not eat that kind of food; even McDonald's had to change its template here.

Don't try and bring your own standards to India. The country will not put up fierce resistance, but simply absorb those who are inflexible or convinced of the existence of some general approaches to management. Make no mistake, here you have to play by the local rules.

How long have you personally been acquainted with India? Are you fond of Indian philosophy and cinema?

I've loved Indian movies since childhood. As a history student, I took a keen interest in the history of the East. After studying at the Academy of Foreign Intelligence and working for a while in Russia, I landed an opportunity to work in India's "friend" — Pakistan. My love for the East grew more intense, and I began to realize, and finally understood, that I could work with these people.

I can't say that I wholly agree with Indian philosophy, but I think in terms of value orientations there is much to learn from it.

Lastly, I'm sure that the East is gaining momentum — the Indian elephant is slowly but surely starting to lumber forward and will eventually leave many of today's successful countries behind. And when it starts moving, there's no stopping it. After all, the sun sets in the West only to rise again in the East.

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