The last two years have been a journey to further consolidate the industry, experience the advantages of expansion & tie-ups, and also to learn from the mistakes, if any.
Leaving the global downturn way behind, the Indian Cleaning Industry is catching up with its growth agenda – better organisational structure, awareness, new partnerships, mergers, de-mergers… Competition, both national and international, is the driving force. The industry estimates a positive growth in the coming year – a growth which could even be around 50%! There is a big market to be tapped in.
How soon and how effectively this will be captured depends on the industry ability to foresee future growth and form strategies, says a few Indian Cleaning industry professionals.
Many international companies are looking at India to partner with local companies and establish a market for its products. In fact, more than 15% of the hits on the Manmachine website even come from countries like Romania and Mexico, besides Italy, Germany and China. India is definitely the market of the future and in the coming years we will get to see many more international tie-ups and acquisitions. At the macro level, this is one of the outcomes of international tie ups and at the micro, a result of the downturn.
It’s a normal business process for global companies to enter India through local tie-ups based on high projections, good credit facilities and expectations of high turnover which is just not happening. Every new player will make this offer to capture the market. In this process, other players will stand up to maintain the competition and growth.
Growth is not just in terms of figures. It is also in terms of structure and expansion. While, internationally a few companies have gone for management change, restructuring, expansion and change in corporate name, Manmachine has achieved growth in terms of making inroads into the smaller pockets of the market, including two-tier and three-tier cities Udaipur, Jamshedpur or Vizag. We have tried to reach different segments too with sales and services and also invested in infrastructure.
Manmachine has opened a much bigger office in Hyderabad and a zonal office in Punjab and adopted IP based technology linking the eight offices. Manmachine did face difficult times but we have utilised them to our benefit by consolidating, strengthening our base and preparing ourselves for a far bigger growth.
The need to expand comes from the demand in certain segments like pharma or city-sweeping for specialised cleaning technologies. Newer technologies have been coming into India. We have recently introduced the upright stand on vacuum and carpet cleaning machines, which are easy to manoeuvre and clean in a short time.
The receptiveness to newer technology is mixed. The reluctance or non-receptiveness could be an outcome of the inadequate spread of awareness or attempt to educate the end users on the part of the equipment suppliers. Nonetheless, the future is bright with 90% of the market still untapped and an expected growth of not be less than 30%.
We need to firstly comprehend the upcoming market segments. The automotive industry in India, the third largest in the world, has more than 10% growth every year. To clean so many cars we would need a great number of cleaning equipment too! Similarly, we also need to focus on infrastructure, residential complexes, ports … All this will fuel demand for cleaning equipment. The Commonwealth Games too will boost the growth of the cleaning industry.
Thus, the focus of the cleaning industry cannot be confined to the metros there is a huge market down the line. It requires investment of time and energy to reach these sectors. In fact, in the time and resources that go into selling a cleaning machine in India, we can sell a lot of other technologies in 20% of that time. India is a difficult market and requires a lot of hard work when it comes to selling cleaning equipment but definitely it is THE market of the future.
When Roots Multiclean Ltd joined hands with Hako as the joint-venture partner in the early 90s, the concept of mechanised cleaning was almost non-existent in India or was known in very small pockets. Roots went in for the tie-up for more than one reason – to understand the technology involved in the big and vast product spectrum manufactured by Hako and to bring world class products to the Indian market – either as imported offering or indigenously developed in India. Over a period of time, Roots has developed its own capability to design and manufacture various types of cleaning equipment and can compete with international brands.
Besides, the dirt you clean in Europe and America is different from what you clean in India and Asia. Unlike the machines made in the West, what we develop here are designed for the Indian conditions. General Motors in the late 80s used this phraseology while trying to sell cars in Europe, ‘Made for European handling’, because of the way European roads were. The American cars were not made to handle curvaceous European roads. Similarly, Roots had the design and development capability to build machines tailor-made to suit Indian/Asian needs.
Growth can be looked at in different forms – in sales numbers, in terms of productivity, in profit numbers and even in capability development. Over the years, Roots has focussed on strong design, engineering and R&D capabilities. It is this engineering strength that international manufacturers look at when they seal tie-ups. Hako saw strength in Roots engineering and they offloaded certain development work to Roots. They also saw that Roots has the capabilities of developing new products but the difference between Germany and India is that here we can apply what we call frugal engineering. In Germany they do not.
While products need not be over-engineered or over-designed, the thinking needs to be different. Carlos Ghosn of Nissan Motors recently said that Indian designers could really look at the cost-effective areas and eliminate unwanted costly additions to processes. He said that the Indian engineer thoughts of how to do with one while the others thoughts of doing the same with five. This is the ‘strength of Indian engineering’. Nissan discovered it now, Hako discovered it in Roots last decade.
We have different partners for different types of equipment. We give them access to Indian markets and they use the Roots brand as their channel. The companies we have tied up with are Delfin, Porto Technica, Interpump, Powerwash, Cleanfisk, Minuteman, Schwarze, Soteco, Capitani and TTS. We buy and sell these products in the Indian market.
The Indian end user is very price sensitive. Products from Europe and the USA are expensive and the duty component adds to the cost. Roots, on the other hand, can provide high end products with cost advantage and meet the cleaning needs of the Indian and Asian markets more cost effectively. These factors are acknowledged by global manufacturers and they look at Roots for the same.
Although, Roots is there for so many years, the Indian cleaning industry, by and large, has woken up only in the last couple of years. It will take time before we catch up with the world.
To understand a technology, it needs a little bit of education. Hence, progress will be concentrated in pockets in the near future. Even though almost a sizable part of the market is yet to be tapped, there will be greater demand from sectors like industry, institution, city cleaning, healthcare, pharma and hospitality.
As far as the increase in duty is concerned, it is very small – 2% of the countervailing duty. Relatively speaking, with Roots developing products here and selling them in India and overseas, this change is not consequent for those who can claim modvat on the duty.
Mergers, de-mergers and tie-ups in the last one and half years indicate a positive growth and an emerging trend in the cleaning industry. At the same time, the survival of the fittest trend is visible in the race to sustain in the market that is growing. We have had like-minded companies in the industry who have joined hands in order to sustain operations. This is a positive trend. The other positive trend is the entry of international companies and their partnering with Indian companies to run their businesses.
The Indian cleaning industry definitely did see difficult times last year. The growth experienced in 2008 at around 30 or 35% would have dropped to a small two digit figure last year. The coming year too will experience only a marginal increase. Even though India is developing and investing in infrastructure development, the rate of growth will not drastically pick up.
Technologies as such have not had much of an impact on the customer consumption pattern. Green chemicals have come into the market. But, the Indian customer has to understand what going green actually means, how it contributes to the environment & sustainability and improves efficiency & work performance. Moreover, with the increase in excise duty and the customers’ reluctance to pay the increased cost, it is definitely going to affect the already low margins the service providers are working with. This will continue, though only until the time the service provider can absorb the loss, but eventually it will have to be passed on to the customer.
The more the international companies come into India, the healthier the competition in this field would be. The end user will benefit from proper service. Jade tied up with Technical Concepts 10 years ago when the clean washroom concept was new to India. Lately, we realised that servicing is the trend and we too began offering specialised washroom services with Best Practices Washrooms. India lacks good service providers in this segment and we have become trendsetters. We are also considering offers for tie-ups and mergers.
People come into India with much hope and expect returns from the very first year. The decision making at the user end is much slower and hence, it takes three to five years for a company to settle down, understand the system and do business. In fact, India is a better place to do business unlike other fast growing developing economies. In spite of recession, the Indian cleaning industry did not feel much of the impact and continued growing at the rate of 20-25%. While many other industries had pulled back employee dues, we still gave our staff some benefits, if not a very big amount. Jade has been experiencing a growth of 40% per annum.
Cleaning washrooms in India was never given much importance and we saw potential in this largely untapped segment. Initially, people did not understand the specialised washroom service we offered. It was challenging, when we began maintaining the Churchgate Railway Station in Mumbai on trial for one full year. Around 40 profusely stinking urinals were visited by 100,000 people everyday! We were able to provide solutions and also went into the nitty-gritty of saving water, though the authorities did not comprehend its importance. It was only when they saw results that they began taking us seriously. Airports, multinationals and corporates, all have started taking toilets seriously now.
Feminine hygiene is one segment which is still untapped. The government should bring about norms to make sanitary bins compulsory, especially in schools. I cannot imagine the problems faced by girl students of Grade VIII-X without proper sanitary disposal units. Some of the schools we have approached have expressed budgetary constraints over installing such units. The sanitary bins supplied by us are imported and subjected to import duty, excise and other taxes. At one end while feminine hygiene is a necessity for the society, the government has increased taxes in this budget when they should have been reduced. The government has to realise that this industry should be exempted from such taxes.
Many players in the market – Diversey India, Kimberley Clark, even Clean India Journal – are doing their part to change the mindset of the people. And things are changing.
The cleaning industry can be divided into two categories for companies selling cleaning equipment – housekeeping purchase and application sales. In the first category, the customer is looking for general cleaning purposes and for application sales, the equipment are needed for a particular application. In the first category, the contribution of building service contractors is ever increasing as more and more customers are looking at outsourcing the cleaning activity. Even in the government sector, the importance of building service contractors has increased tremendously and the focus is on economy, payment terms and service delivery. In application sales, the customer generally buys directly and the focus is more on technology and technical expertise. Margins are better in this category. During the past year, the interest of European companies to set shop in India has been growing, as they envisage growth during the coming years and would like to have an important share in the pie. They seem to be having tremendous confidence in the Indian economy and also in the country’s socio-cultural atmosphere.
The year 2009-10 had two clear phases. First half was extremely tough with most companies adopting a very cautious approach and most of the periphery projects / purchases were on hold resulting in almost nil growth. However, post-September, there has been a boost in almost all the segments, especially the manufacturing sector leading to an overall growth of 15-20% for the year. There has been no technology as such introduced during the last year or a marked growth in the new companies which have set shop during the year. However, the most important trend has been an upswing in the sales of machines with higher productivity as well as battery operated machines. Ride-on machine sales have more than tripled for us during the year and we see the trend to continue in the coming years with greater emphasis on mechanisation and technology. This would lead to higher demand on capital investment and over all increase in quality and adherence to laid out hygiene standards as per international norms and laws.
There remains a huge potential to be tapped in the cleaning industry which provides a positive outlook for the future. However, to tap the same, one has to have a distinct competitive advantage, build brand salience and have an infrastructure to cater to a vast market as there is a shift in the growth process from metros to second rung towns and cities. This would require investments and staying power in the market in the face of ever increasing competition and the ability to educate the end user on the correct cleaning solutions. Having the right products and prices for Indian conditions, right partners with long term vision as well as right people to promote these would decide the winners and also the ranks. We, at team Forbes Pro, are excited about the possibilities and have geared ourselves fully to partner our customers in all their cleaning technology solution needs.
The signals from all segments of the market are positive. At the commercial end the offices, BPO, malls – there is a significant movement due to infrastructure growth. In the last six months, the positive outlook by the industrial sector, including steel and cement, has percolated to the related sectors, including the cleaning industry. The inclination towards green practices or the compulsion to meet environmental stipulation could also be factors for the industrial sector to invest in cleaning machines. The municipal sector has continued to invest in cleaning equipment.
Unlike in the past, the concept of cleaning is catching up and more and more end users, especially with large surfaces, realise that cleaning cannot be done just manually. Be it escalators in shopping malls or washrooms in airports, effective cleaning and sanitizing can be done only with machines.
Infrastructural growth necessitates the maintenance of whatever is built; it could be airports, ports, bridges, roads and so on. The higher budgetary allocation also emphasises increase in urban infrastructure growth with JNNURM and the PPP projects. Industrial customers are expanding capacity and more power plants are under construction. Given the infrastructure investment, the cleaning industry could grow even up to 50% compounded.
End users are receptive to newer technologies. Tata Steel has invested heavily in our machines for dust-free solutions. In fact, the interest in the cleaning market is directly proportional to what the market can offer. Earlier, the demand was small and the market size relatively smaller. But now with development, there are many players in the market. As the market evolves, specialisation will begin. Until now, everyone has been providing everything. In the future, each one will offer a specialised service. At Dulevo, we believe in specialisation and are gearing up to meet demands of a specified requirement. Every company cannot be a specialist in cleaning of carpet, polishing a marble floor or cleaning a municipal road or a steel plant.
In a move to synergise and complement each other, where a single company can cover various market segments on a larger perspective and reach the client better, Charnock and Inventa joined hands to form a new company – Green Sweeping for marketing products of RCM, Italy. The prime reason for two competitors coming together is to synergise the marketing and manufacturing capabilities of each. In the long run when the products are established in the market, Inventa Cleantech Pvt Ltd could always start producing for RCM in India. Hence, the international brand too gets a comprehensive solution. Acquisitions are strategic moves to narrow down competition and have a larger share of the market. Anyone wanting to enter this market would now think a couple of times because of the existing big players.
A client, on the other hand, can get solutions under one roof and do away with the need to deploy various vendors. This is a more professional approach. Yes, the technology exists but the end users, though enthusiastic about it, are still reluctant when it comes to higher investment in advanced machines. We are far away from that mould and it would take another five to eight years for the Indian end user to graduate to that level. Nevertheless, there is a small percentage in the corporate sector that goes in for such advanced machines. There is a huge untapped market in India and we have a long way to go.
New generation green products are something that the clients will go in for in times to come and hazardous chemicals would finally wane away. The hospitality industry and the contract cleaners are looking for green products as they are cost effective. It is challenging to get them approved and trial runs are done to convince the end user. Once these are done, then there is no looking back.
Perhaps, the excise duty going up by 2% from 8%, and the already existing high taxes are not encouraging as prices are likely to go up. There is not much of a market strategy one can adopt in the given scenario. We need to survive and our margins will further slim down. To increase gains, we need to increase volumes. The market needs to mature to get into that volume game. Meanwhile, it is necessary to deliberate upon the Environment Ministry that cleaning products primarily are meant to keep the environment and surface areas clean and hence, we need duty concession. This will help to keep the entire country clean.
By 2012, this industry would reach a turnover of Rs8-10 billion at a growth rate of over 25% per annum. The factors boosting this industry are rapid infrastructural growth and the increasing presence of MNCs. The economic growth that is now shifting to two-tier cities indicates tremendous scope for FM companies. This is the right time to invest in this business. There are regional players who are getting together and there are mergers where Indian equity is also involved. Mergers at the unroganised level have to make real efforts to sustain by altering their attitude and adopting professional practices. Similarly, MNCs will increase general awareness, competition, especially with equal level players, professionalism and knowledge base. This will help the customer get the right standard for the money he pays and employees will receive wages as per the labour law.
There is a major shift in the strategy adopted by service providers. It is a myth that housekeeping is cleaning. Housekeeping is providing the right equipment, chemicals and right people leading to a healthy environment. By doing this, we will enrich the customer. The more players enter the market, the more people will get educated on the need for such an environment. This will increase mechanised cleaning, but given the population, we need a balance of both manual and mechanised cleaning.
While bio-chemicals are entering the market, there is not much awareness about them. Again FM is not just housekeeping; each day, the scope is expanding. India began FM with housekeeping and extended to other services like front office management, car parking, security services and so on. Today, if FM companies have got into even doing fleet management for a company, I would say it is only now that we have started filling the basket providing these services.
The next decade will only see the Indian growth story all over the world. In the next couple of years, the industry players will be strengthening themselves before moving into a hyper competitive stage. IT sector is completely a bullish picture. There are plenty of opportunities for every company whether it is local, regional or international. This is a positive trend.
The organised sector has a larger role to play at present. People now realise the necessity of facility services and every sector is looking for solutions. Earlier, these services were limited to corporate or IT related business where there is a need for high profile organic structure to work in. With acquisitions even at the customers end, for most of the sectors whether it is food processing, pharma or any kind of heavy manufacturing, the companies are looking towards the organised sector to maintain their property and provide them a clean environment.
With a significant growth certainty, there are a plenty of opportunities for the Indian cleaning industry. Apart from the existing untapped market, there are avenues opening up with the infrastructure growth and increase in big manufacturing units. There is a large business waiting for us in the government sector too.
A constant change is taking place in the attitude of clients towards facility management. They are looking at someone who can cater to all their offices – it could be pan-India or a global chain. Further, they are giving importance to FM. Some of the top architects in forums have been talking about the need for FM to maintain the buildings. The fact that the perception is changing is a good sign.
Definitely, post Copenhagen, people give attention to anything green. You give the client any kind of saving mantra and they say, ‘Wow’, this is what we would like to go for and make a big difference. Healthcare sector is one potential area besides government, nuclear plants and manufacturing business. We should also look at the upcoming huge residential campuses. At present, the cooperative housing societies are manned by cheap and local industry players. Over the years, that will change and they will like to have a quality single window solutions provider to service additional facilities like swimming pool, gym and electro mechanical systems along with the entire facility.
Ours is perhaps the fourth company in the industry where private equity has been brought in. Even companies having a turnover of Rs100-200 million have gone ahead with mergers and acquisitions. This trend will take the market to the next level.
Such a trend among the smaller players will move the market from proprietary to partnership. This is an industry where one can start off with an investment of Rs10,000 and there are over 500 such family-run companies in the market. When these companies reach Rs100 million turnover mark, the real struggle begins as a company Rs100 million upwards need to engage professionals. It was when Total Solutions reached Rs500 million and Dusters, around Rs700 million, we realised that we had to move to the next level. This is how the market grows as it matures.
On the other end, many local players are doing very well in their localities. For example, there is this contractor in Ahmedabad who is probably not known even in Rajkot or Surat or Baroda but he is doing very well and wants to remain that way. Similarly, there are facility management companies that are based out of a particular place, say Chennai. Despite a pan-India presence, their strength lies in their hometown. Total Solutions was very strong in the West and Dusters in the South. We decided to create two strong bases, acquire a company in Delhi and wrap that up, which we are in the process of doing.
The Rs100 million housekeeping companies that began operations 10 years back, initially show a sharp rise on the graph, then a levelling out and finally, a downward slump which is equally sharp. These companies have to realise that they cannot stay put in the same place, they have to take a look at growth and they have to have the infrastructure and inputs to sustain that growth.
Along with the merger, we are also coming up with the customised ERP system. We went live with the central software system on April 1. We have PMS (performance management system) and are also putting PMO in place, deciding on ESOPs for the company and working on a whole lot of best practices from other industries and trying to implement them in our company.
By doing this, we are setting a role model for those companies which are smaller to us. Mergers eventually lead to a more organised and professional industry.
The cleaning industry has not been hit that badly with the downturn compared to the IT and infrastructure sectors. A multinational company that had engaged 100-odd employees to provide X-level of standard services has turned around and said that it was acceptable even if its offices were not cleaned regularly, as the costs were to be controlled. In spite of the hit, we have grown at 30% last year.
Everywhere you travel, you always see some kind of innovation. There are always newer products in the market but it can only help enhance one’s knowledge base as not all products can be made available in India. But India has some of the latest machines – auto riders, sweepers… Along with the technology, how receptive are the end-users? In fact, the end users also need to mature. Whatever innovation we have to offer comes with a price. In almost all contracts, 90% clincher is L1. While the clients appreciate that we as service providers will deliver the best, they ask us to match the lowest price.
Four to five years back, it was more the cost that mattered than the cleaning and it still does. May be things have improved by about 10%. Talking about technology, people view this industry as a cost plus industry. You have your input costs plus management fee. They don’t realise you are talking about technology, trained manpower, systems, audits, transitions but when we tell them that all this comes at a cost, they ask us to include it in our input costs.
Today, we are going to clients and telling them that it is their property. They have to give us an SLA and thereafter, it is up to us how we do it, in terms of technology or manpower. We know we have to deliver quality. But that is not what usually happens. The client says this is our property, give us 20 people! That gives us limited scope for innovation and efficiency.
Sodexo is known for its food services and with the acquisition of Radha Krishna Hospitality Services, we are able to retain the number one position. Along with that we also got Unisol, which is into facility services. Thus, we are able to grow in volumes both in terms of facilities and food services. Therefore, mergers and acquisitions are essential.
If you look at the current trends, there are many equity players that have been looking at acquisitions. Such mergers happen when there is a tremendous growth in the market. There is a good prospect and potential growth. The soft services are growing in India because of many retail shops, malls, hotels and hospitals. And everyone is moving towards professional approach of outsourcing.
Most of the companies are moving towards green chemicals. So there is innovation and there is more manpower based business model. In 1998, when Maclellan Integrated Services (I) Pvt Ltd started in Chennai, that was the first international company to explore India. And now, we have 12 organised players competing against 1000 unorganised players. Mechanisation was less than 5% then, but today, even the unorganised players are moving towards mechanised cleaning because of shortage of manpower in cleaning services.
There are two trends; either you have a manpower driven model or you make it more mechanised and drive it. The latter option may appear attractive cost wise, but it can also be less productive compared to mechanisation. My experience has been that, the clients are very positive and have been encouraging mechanised services. Today, the organised market is around 150 million sqft and unorganised market is around 1billion sqft. We don’t have enough manpower and there are no major institutions to offer training either.
I feel certain incentives should be given to organisations that promote green chemicals and engage themselves in energy management or waste management. I foresee at least 30% growth for the Indian cleaning industry. The challenge would be: How would the players in the organised sector (13%) compete with those in the unorganised sector (87%) in the coming years!