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‘Only those that can make a quick change will survive’

A R Suresh Kumar, Vice President & Head – International Operations Business Group, Voltas Limited, reflects on how COVID-19 has fundamentally changed the global business landscape, the challenges confronting the HVACR industry and on what it can do to overcome them. Excerpts from the interview with Hannah Jo Uy, presented in the form of a feature article…

| | Aug 17, 2020 | 1:09 pm
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A R Suresh Kumar

COVID-19 has led to such an unprecedented global upheaval, the likes of which the international community has not seen since World War II, says A R Suresh Kumar, who was unrestrained in sharing his reflections surrounding the current business climate. “The world is upside down,” he points out. “This is what we have seen during the last few months.”

With two-thirds of the world’s population coming to a standstill, Kumar points to how restrictions have crippled the travel industry and left factories unable to operate and farmers unable to harvest their crop; and equally worrying, they have deprived students – from a young child to a research graduate – the benefit of the blackboard. “At the turn of the century, countries that previously took a leadership role towards globalisation have now championed de-globalisation,” he says. “While this is a rude shock for the countries and corporations moving ahead with their plans, the stagnation also served as an easy escape route for those who wanted a reason to exit from commitments.”

Businesses, in general, adds Kumar, are facing a large number of challenges, including concerns related to the safety and security of the personnel as well as the reliability of logistics and manufacturing activities. However, Kumar points out that a common thread in the problems the business community is facing is uncertainty – uncertainty related to the very spread of the virus, regulations, movement restrictions and, overall, the future of the construction industry. This uncertainty, says Kumar, hampers organisations’ ability to develop a proper strategy. “Currently, strategies are short-term in nature, and can only be called an ‘attempt’,” he says. “Systems and practices vary from company to company, people to people – and the reliability of these strategic process are not assured.” Many organisations across the world, Kumar says, have had to grapple with losing skilled manpower and resources, and even “developed” economies are not unscathed, as weaknesses and lack of healthy infrastructure have been exposed forcing investors and leading corporations to pull back from ventures.

It is still difficult to arrive at permanent solutions, Kumar points out. “You may see temporary signs of recovery, which are only on the surface,” he says. “We are just treating the skin. You may see some green shoots, some solace, but the real solutions with proven turnaround are yet to happen. Whatever is happening today may lead to changes in the way we work, we travel, we meet or we think. But it may be wrong to say that this is going to be a new normal. We are far from the normalcy. Individual groups, companies, countries will have to define what normalcy means after a year. Many of the steps that we have taken so far have also been proven wrong, and the current results are just providing some relief and not a long-term solution.”

Old fears

In addition, Kumar says that COVID-19 has triggered concerns surrounding suppliers from China, which has earned the reputation of being “the world’s workshop” over the past 10-15 years. Undoubtedly, Kumar says, manufacturing companies based in China have directly or indirectly been responsible for most of the goods entering the Middle East market. However, he believes the current pandemic has brought up previously discussed concerns related to the quality of some of the equipment being sourced from China, as well as the reliability of its logistics “Many are asking, ‘Are we safe in the hands of Chinese manufacturers?’” he says, adding that debates related to quality versus price, and quantity versus time span are once again going to be at the forefront of discussions.

“One thing is for sure – post-COVID, China’s reputation as the ‘world’s workshop’ is going to change,” Kumar says. “Manufacturing will be fragmented and located across different economies and geographies. ‘In country value’ and local manufacturing will pick up momentum, and there will be greater focus on local employment and skill development.” As a result, Kumar says, stakeholders can expect a slowdown in the HVAC industry, as the world is reaching this turning point. “Companies will have to gain new ground and catch the momentum, which will take at least 12-18 months,” he says. 

Cash is king

In view of these trends, Kumar says, the mantra, “cash is king” finds new meaning during COVID-19, adding that bankruptcies, salary delays and company closures in the contracting sector signal a weakening economy. “When everyone in the world was running behind the topline and bottom line, looking for exponential growth, market share, and mergers and acquisitions, they forgot that the fundamental of business lies in the cash in hand,” he says. Kumar believes that organisations that took on a more conservative approach, when it came to tightening cash collections, could survive during the pandemic, while others would not have enough money to remain open. “It’s time for the HVACR industry to understand that it’s not the market share or top/bottom line growth on paper that is going to decide your future,” he says. “You have to collect cash and keep your supply chain smiling during this difficult time. You are going to survive only if you keep your stakeholders happy.” Kumar adds that it is also important for manufacturers to have a realistic assessment of the demand, so companies do not overproduce, as no amount of marketing strategy will be effective in the next year. “Finally, those who are in the ‘white labelling’ or ‘Box Moving’ business in HVAC will be in trouble, as they will have cash flow pressures on both ends,” he says.

It is equally important for consultants, contractors and FM professionals to adopt a more pragmatic approach to cash flow in order to regain lost ground, Kumar says, urging stakeholders to redefine and understand the fundamentals of their respective organisations. “You need to have enough cash to run the operations and to keep the supply chain alive,” he says. “Globalisation and market-driven economy have pushed organisations to grab more market share and larger production. This created, to some extent, a ‘hollow economy’ reliant on huge and extended credits.” Even pre-COVID, the market had seen the collapse of many consultants and contractors with unscrupulous balance sheets, Kumar says, calling out companies where revenue and profits were confined to paper. “This pandemic will be a storm that will erase many contractors, vendors, consultants and even clients from the business landscape,” he adds.

Kumar says that in the face of the harsh business climate, the industry should place greater value on the importance of collaboration and mutual respect. “Unfortunately, consultants, contractors, suppliers and clients are not having confidence in one another and are suspicious of one another’s motive,” he says. “This has led to an unhealthy situation, which eventually creates a dent in one another’s balance sheets.”

This unhealthy situation can be seen in contractors serving as the financiers of the project and needing to borrow in an effort to keep up with some clients, who in the first place, should be getting support from financial institutions for their project, he says. Additionally, Kumar says, consultancies, forced to charge low prices for their services, sought recourse in cutting corners in a bid to reduce operating margins, all at the cost of contractors. “Unfortunately, in the value chain, the maximum number of human lives are linked to the contractors,” Kumar says. “Once they are affected, the biggest hit is absorbed by the staff and workmen.” This, he adds, has a carry-over effect across the overall economic ecosystem, including housing, travel, tourism, groceries and retail. “It’s time for this industry to understand this reality,” he says. “It’s not just about survival. I would suggest that each one of the stakeholders should focus on their role, and let’s go back to the golden era, where each of us existed for our professional reasons.”

Reinventing the wheel

Kumar believes that in a post-COVID world, a de-globalised market will push stakeholders to reinvent the wheel. Sharing his vision for the market, Kumar says that he foresees large corporations will have region-specific manufacturing facilities. New entrants, he adds, will emerge with new products, and indoor air quality and water will assume greater importance. Further, he says, there will be a requirement to develop and comply with higher standards in the healthcare sectors, public utilities, logistics and storage, in a bid to prevent similar pandemics.

Kumar adds that availability of skilled personnel, which has already been a constant challenge for the HVACR industry, will also give way to a new problem for those that are dependent on human exports, as increasing demand for local requirements will prevent skilled manpower moving out of their hometowns.

Lastly, Kumar says that the market will provide opportunities to businesses that have invested in moving from simple automation to digitisation and Internet of Things (IoT) and that the next 3-6 months will be the defining moment for the future potential of these industries. “Prefabrication, or offsite fabrication, will gain momentum with flexi-manufacturing approach,” he says. “The use of artificial intelligence and machine learning, combined with robotics, will lead to projects mostly done in factories, and then just assembled at locations.” This will underscore the importance of digital connectivity, which will be a vital infrastructure for many projects, he says, adding that, “current conventional management of projects will be replaced by more dynamic processes, driven using digital and IoT tools”. At the end of the day, Kumar says, only those who can make the quick change are going to survive these extraordinary times.

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