From the humble floppy disk, a dynamic Indian businessman is branching out all over, even into solar energy

HE MAY LOOK like Adrian Brody’s kid brother and talk like he swallowed more than a few issues of the Harvard Business Review, but there’s no denying that Ratul Puri has chutzpah. Since the 35-year-old executive director of Moser Baer India came back from the US to guide the family business in 1994, the company has become the exemplar of competitive Indian manufacturing – something that’s still considered an oxymoron on the subcontinent. The former floppy-disk maker built a greenfield CD/DVD factory in 1999 when nobody believed there’d ever be a market for blank CDs because the costs couldn’t be driven below US$5 apiece. Today, the company is the second largest optical media company in the world, manufacturing about three billion CDs and DVDs a year. It has also revolutionized the home entertainment business in India through Moser Baer Home Videos, a unit that has bought the rights
to reproduce and sell 10,000 Indian movies on VCD and DVD and slashed the retail cost of buying a DVD in India to about $1 from $10 or $15. It has also started making DVD players and LCD TVs that offer the same features at a tenth of the prices charged by their international competitors.

Finally, Moser Baer is entering the solar power business – using technology and manufacturing expertise it got from CDs and DVDs – and is a leader in the race to provide solar power at $1 a watt by building the world’s largest thin-film solar fab factory. Puri spoke synergy with power contributor Jason Overdorf.

You entered manufacturing when everybody said it wasn’t possible in India – and high-tech manufacturing to boot. What made you convinced that it could be done?
I think Indian manufacturing was going through a very difficult period of adjustment [after the economic liberalization of 1991] and that’s why everyone said India couldn’t compete, including the manufacturers themselves. A lot of fat had built up over a long period. India had put walls up: 250 percent tariffs and licenses. So [the perception that India wasn’t competitive] was less about fundamentals and more about Indian industry adjusting itself. We had the benefit that because we wanted to grow in scale very early, we were always addressing the international markets. So as we went into the mid-1990s and started to get into larger size and scale. We were always operating on an internationally competitive basis and suddenly we became the poster boy for competitive Indian manufacturing.

Recently you made this dramatic shift from being an all-optical media company and entered into solar energy, and then entertainment, and now into consumer durables. What made you think this is the time to do this and how do you plan to avoid spreading the brand too thin?
As we look back, it was about 2005 that we started to look at some of these areas. There were a couple of factors. First, in optical the rate of growth globally slowed down pretty significantly. It was still growing 20 percent to 30 percent in unit terms, but that was off the 60 percent, 70 percent, 100 percent growth rates we saw from 1998 to 2005. Along with that, CD demand was starting to decline and DVD demand was picking up and growing pretty rapidly. So we had a limited amount of incremental capital that we needed to put into the business and the business was throwing us a lot of cash.

Besides having the capital, we wanted to enter areas where we could derive significant synergy from all the capabilities we’d built up. I’d like to say that we got into the photovoltaic business because we got McKinsey to come in and they did a study and they identified our core competencies and mapped it against a thousand-page model. The reality was it was a chance meeting with someone who worked with an NGO in India from a solar company in the US. As we looked at photovoltaic, we got very excited about it. First, of course, it was growing very rapidly – the way optical used to grow. A lot of the core manufacturing technologies were very similar to what we were already doing in optical [and] India was going to be potentially a very, very big market for this product. So it had all the right conditions for us to get into it.

ntertainment was obviously a very different business, but it still uses the same core disk manufacturing. We discovered a method with which we could make a pre-recorded disk [a DVD that comes out of the factory with the movie already burned on it] at less than half the price that was traditionally associated with it. We took this out to a lot of domestic movie distributors and we found them to be pretty myopic in their view of the business model. At the volumes they were doing, the industry would be completely uninteresting to us. The whole Indian video industry was doing something like 15 million units a year, and at that time – we got into it in late 2007 – we were producing three billion blank disks. So there was no point in offering them a cheaper price and saying give us your 15 million disks of replication volume.

But at $1 a movie, the business looked more attractive?
You didn’t need to go out and spend a lot of money on market research to determine that $10 to $15 a disk was too much for India [to pay for home entertainment]. There were never cheap DVDs and VCDs available in India. If they were cheap, it was pirated stuff.  What we did was bring in high-quality digital content [both in terms of the quality of the original source material and the disk itself] at very affordable prices, at price points that are very close to pirates. That created a disincentive both for consumers and for distributors to buy pirated content. We’ve got something like six or seven global patents on the technology. Our next goal is to take the Indian content we own [and distribute it] outside of India.  [But after that, the question will be] can we replicate this model [and compete with pirated Internet downloads] in other markets?  Three-quarters of the world’s population watches pirated content. But if the content is cheap enough and easily available, a lot of people won’t go through the trouble of downloading it over the Internet or buying pirated disks.

Did you face any problems because you were venturing into such unknown territory?
We had many, many challenges. In India there are hundreds of individual producers and the studio concept historically did not exist. So we were going out and doing individual contracts and buying content at the rate of one or two a day [to get to our target of 10,000 films]. My colleagues have told me how they went into the house of a producer’s grandmother and scavenged through her attic to find reels of film – that’s our original content. And then how do you get it to a quality level that is acceptable? We were forced to create a whole film restoration studio and a whole pre-press studio in Chennai with a fairly significant investment. But we were also going to try to release something like 10,000 titles over a two year period, which meant 5,000 titles a year. If you look at the entire pre-press facility of the US, for example, they have the capacity to do maybe 2,500 titles a year. We appointed something like 600 distributors over a period of 80 days. We were appointing 10 distributors a day at one point.

What makes you think you’ll be able to push the price for solar energy down far enough to compete with conventional power?
From our perspective, we’ve been traditionally very, very good at cutting costs. We’ve been much better at taking an existing product and innovating from either a cost or performance perspective and making it better.

What we’re doing with silicon thin films, we’re using a lot of what we learned in opticals to take costs out. Even before we started making thin films for solar, we were coating more amorphous silicon on substrates than anyone else in the world because we were coating amorphous silicon on a lot of our optical substrates. We believe that we can very quickly get to the magic $1 a watt number you hear thrown around. We plan to have 600 odd megawatts of capacity by 2010, and I think that’s something that will get us to the magic $1 a watt.

What this would allow is what I would call being “grid competitive,” and the ability to very quickly create grid-competitive power. You can have a solar farm up in six weeks! You can create a lot of capacity very quickly. For India, this actually solves a lot of very serious problems. One of the reasons that India is not growing at 10 percent plus – or was not growing at 10 percent plus [before the global financial crisis] – was because India had a serious energy shortage.

Why get into consumer electronics? That seems like a very crowded business.
We’d always sold consumables and this was the first time we were going to sell durables. What drove us is the strong belief that there’s going to be a very large market out there in India. But before we can address that we need to create a distribution infrastructure, a service infrastructure and a sales infrastructure that can eventually cater to that market. India has 100 million-plus television households and it buys about 10 million televisions a year, and television sales are growing at about 10 percent a year. But India is still about 90 percent picture tube, because LCD is too expensive, about twice or thrice the price of traditional TVs. We believe that within three years, the price points will come down to the inflexion point. Obviously we might be a little early, because of the overall global collapse.

The second factor that drove us was some very strong research that showed that consumers had a very high image of the brand, and they had the right perception of the brand, which allowed us to take multiple products out under that umbrella. [In optical media] consumers were regularly choosing Moser Baer products over leading top-tier Japanese and European brands, which traditionally had a very high reputation for quality in India. In most of the [consumer electronics] product categories we entered into, considering that we have no history or background in this space, we are in the top five position in most of the product categories.