For nearly 40 years, United Tractor & Equipment Ltd., UTE for short, was run under the rule of one man, Priath Fernando. In those four decades Fernando oversaw the growth of UTE from a simple dealer of construction equipment – through their close partnership with world-leader in the field Caterpillar (CAT) – to a Sri Lankan industry pioneer in offering engineering solutions to, now, an active player in key industrial sectors such as storage, power generation, and material handling thanks to the synergies created by its unique CAT/Dealer relationships.
Four decades, however, is a long time in any industry and circa 2008 Fernando heard the words every long-term chairman dreads: “Right now you’re the biggest problem.” The words were spoken by Fernando’s son Prasan’s father-in-law, who had been brought in as a management consultant to oversee the decentralising of the business.
“You’ve been involved in business so much, taking the decisions, it’s very centrally-controlled,” he continued. “Let the managers make the mistakes, they’re not going to be big mistakes. We’re still controlling overall cash-flow and turnover, so we can see how things are going and put in the monitoring systems, where we can monitor without having to get involved, and if they don’t produce the results they’ve got to give explanations, but we’ve got to let them take the decisions up front.”
Fernando, who laughs as he relates the story, took the advice in his stride, and admits that that was the start of the process of him letting go. As of publication, Fernando has been officially retired for over two months, his son having taken over since. Fernando, whose primary passion has always been golf, is now spending most of his time growing the sport in country.
Golf, he explains, is in his blood. His mother, father and sister were all extremely proficient amateur golfers, and Fernando too would have followed in those footsteps if not for a sudden turn of events. Fernando’s father, the late Pin Fernando, had built up UTE and cultivated its relationship with CAT. Priath had been involved with the business a few years when, in 1981, his father passed away. This he refers to as being “thrown into the deep end,” a period which would prove crucial in shaping him and his business. Fernando sat down with Daily FT for a conversation on the biggest challenges faced in his 35 years in charge, the present state of the industry, how he envisions the future, his son, and his plans for retirement.
Following are excerpts:
Q: To start, tell us a little about the leadership transition. Has it been smooth?
A: The transition started about two years. On my 60th birthday on 14 June 2014, I informed Caterpillar that I wished to step down. They basically said that my son has to go through a transition period where he will have to show his commitment. From that point onwards I haven’t actually been involved in the operating, I just used to go for the monthly progress meetings and give my advice as and when required.
Q: Would you say the system that is in place now is more decentralised?
A: Now as far as we’re concerned, unless there is some big project going – I’m actually out of it now, I just give my two cents worth from the side because I’m still a director of the company and I have experience and marketing background, I am asked to give my opinion on various initiatives – apart from that the responsibility is squarely on my son and CEO.
Q: How long was Prasan involved in the business before taking over?
A: Straight after school he did come in as a trainee, that’s going back to the late ’90s, then of course he left and was in university for three years. He basically decided to come back on his own and get into the business, he was qualified in Finance and Information Technology. So he basically came and took over the finance function, but even before that, because we were a family business, my wife also was involved in the business. So she was CEO at one time. She was consulting with him on financial systems and process, because my wife was not a qualified accountant, so she was consulting with him and I didn’t even know that. I was focusing a lot more on that marketing side.
Q: So you’re confident in his ability to take over the reins?
A: If he messes this up, it’s entirely his fault, he’s been given a Rolls Royce. [laughs]
Q: In your near 40 years in charge, what have been some of the biggest challenges you and your company have faced?
A: At different stages there are different challenges. The kind of business we are in you have very big ups and downs. The time that I really got involved was 1979. Caterpillar up to that point was our main principal but not officially, because from 1971 to 1977 there were import controls, and there was a problem with Tractor Corporation in courts, and things like that, so we could not be the official dealer. In ’79 we re-signed the agreement with Caterpillar, then all these international contractors were coming in and it was a case of how to cope, not just how to survive. That was one area where I was just getting involved in the business, got married in 1980, my father died in 1981 so I was literally thrown into the deep end of the business without having much experience. So that was a real learning experience for me.
I depended a lot initially on expatriate consultants coming in where they would be training our people on the job. They were required mainly because of the foreign contractors, however each of them wanted top class service which we weren’t able to provide at the time. Caterpillar in fact wrote to us, because they were very worried that we were not meeting the standard, and they said that they were going to look for another dealer. So for me that was the biggest sort of shock. But I managed to convince them to give me six months soon after my father died to prove that I can, you know, make things happen. Basically the rest is history; we brought in the expat consultants, we gradually started turning things around.
Then of course there was the 1996 power crisis, from selling like 60 generators a year we sold something like 350 generators, without increasing the staff. It meant our service crew had to be on duty 24 hours a day installing all these generators that were coming in – customers were airfreighting generators! It was a real crisis period as far as the power was concerned, so it was ironic with all these hydropower projects then with the drought we suddenly had power cuts.
After that we started planning in two areas of our business, one was in the power sector where we started specialising in selling generators and the other area was in treatment plants, water treatment, sewage treatment. Because that also, I could see that there was a huge problem in that area and there was nobody getting into that sector. So we were almost pioneers in that sector, today there are a lot of competitors. But we have moved on from doing the work to being more like consultants because we have all the expertise.
The other time that things got really bad was around 2006, business had got so bad that Caterpillar themselves came and asked me, “Do you still want to remain in this business?” I said yes, and they said that we had to something about our financial performance because they didn’t want to see their dealers losing money. Things had got so bad that we had to cut down. So we started doing various cost cutting exercises. Even things like putting the air conditioner on, we would be very careful. I mean our electricity, from something like a million rupees, we managed to bring it down by half. Also you can’t just fire people, so we had to go through a phase of gradually offering packages for people to take. We couldn’t do it in a wholesale kind of way. At the same time you have to maintain a certain optimum number of people; these people are all well trained, and it takes years to train them, so we don’t want to lose them. So through proper management of costs and bringing in much more efficiencies we basically survived. It was a fight for survival in those days.
Q: How long did that tough period go on for?
A: I would say it started around 2005, mainly because the war situation had got so bad; there were no big projects to keep us going. In the earlier years there were always two or three big projects that would come in, where we’d sell X number of machines or get a big contract somewhere, and that would keep us going. But at that time it was cut down to hardly anything. In fact we did do something, which really kept us going, we started sending our trained staff to operate and maintain power plants abroad. There was a client who had come in 1996 or 2000, when there was another power crisis and they were very happy with the way we maintained their power plant, so when we moved out and moved into other countries, they actually wanted us to supply the staff. So that worked beautifully for us, sometimes things happen and the opportunity comes your way. It was perfect for us because then we could keep our staff also going. That has actually stabilised the company quite a lot, but still it was not enough to grow; just enough to survive.
Then in May 2009 the war was over. So all of this was really a blessing in disguise, because we were ready. That was a nice reward. By that time we had restructured our company, we were lean, we had very efficient processes in place, and as I said the decision to bring my management consultant in, he also helped a lot in building up our capabilities. And by delegating authority and responsibilities these guys actually tripled the turnover.
Q: In your time in the industry what is the biggest change you’ve seen?
A: The biggest change I’ve seen is the growth of the small and medium scale industries. Business has been geared to the top of the triangle, the big contractors. As a result the competition has come in and serviced the SMEs with relevant products, Caterpillar was not geared to handle that market, they didn’t have the products. We didn’t have the reach or market coverage, which was mainly focused on the top 10 contractors. I would say we got about 80% of their business. And even 2009 when things took off we were the first to buy machinery. But in the meantime this other growth has been happening without us even realising.
Now things have slowed down at the top end. We have realised that there is a lot of business out there and we have to reach out now; now Caterpillar has come out with the right products, they have come out with solar panels which are supposed to be the most efficient panels in the world. We even tested it ourselves in the facility against the most panel in Sri Lanka, and we are 10-12% more efficient. Price to kilowatt being generated we definitely save more money for the guy investing in solar panels. That’s an area where we have up to now not had market penetration, we need to do a totally different type of marketing to get into that area. When you look at all the marketing technology now, there’s a lot now that can be done without having to be physically present with your product, as long as the customer can access you and you can deliver fast.
There is also a lot of value addition that we do in our business now which we didn’t do earlier. This comes from working side by side with our customers. We try to understand what their problem is rather than just selling them a product. Very often a customer comes and says they want a 100kpm generator, but we don’t just sell the generator, we ask them what it’s for, about soundproofing, vibration, all those factors. We then arrange a site visit, make sure the application is correct and then give him the generator he requires, keeping in mind the future requirements. That’s been a big plus for us.
Q: So you’ve left your business in good shape, what next?
Taking some much-needed R&R? A: I am now working harder than ever before. [laughs] As you know my background has been golf, born into a family of golfing champions. Unfortunately after my father died I was thrown into the business. Golf had to take a backseat. But in 2014 I basically threw the ball to my son to convince Caterpillar that he could do it. By about October 2016 he went to Singapore, made his presentation and Caterpillar accepted him. So I fixed the date and said 1 January I’m out, so I’ve been involved a lot in the golf development side.
Q: Yes, you’re now the President of the Sri Lanka Golf Union. How is that coming along? A: There was some issue with the Sports Law, where for some reason the Sports Law prevented an office bearer of two years from being an office bearer thereafter. I don’t know why it was the case, or whether it was a mistake in the way it was worded, interpreted or whatever, but suddenly I found from being VP (of the SLGU), I was elected President in April 2016, then the Sports Ministry came and declared that AGM null and void. And I couldn’t hold another post so I took a break from everything. Had a nice holiday.
Now the law has been changed, and it’s going to be changed again, because it comes under the National Olympic Committee and golf is now an Olympic sport. So the Sports Law actually has to fall in line with that. There is now going to be less interference from the Sports Ministry and they will be more like a body that will assist. Anyway I was re-elected in April last year and it took me about six months to figure out what to do, what not to do.
You start a to-do list and it just gets longer and longer. And finally I realised that we had to get all the stakeholders, golf course operators, golf tour operators, hotels, to look at golf as a business. How to get money, we have to bring in strategic partners. The Golf Union itself didn’t have much of an image, didn’t have a structure in place. Anyway we decided that fortunately there are more golf courses now that have come up after the war.
All the defence services have put up golf courses near their camps, prime property. So now we’ve realised that we can actually take golf to schools. Because we can’t play golf in a school ground, not enough space, it’s dangerous. So we decided that we were going to start with schools that were near golf courses. To do that we decided we needed more trainers. We just completed and had the award ceremony where we handed over certificates to four trainers. These trainers will be committed to helping us develop golf in schools. Our first goal is to work on quantity; we don’t have enough juniors playing golf. We don’t have golfers. Our defence services also have started playing golf, they have tremendous hand-eye coordination.
One of the things we identified long time ago was that Sri Lanka can produce world class golfers. If we can produce world class cricketers, absolutely nothing to stop us from producing world class golfers. Today golf is a huge sport, it’s a huge industry. And Asia is growing faster than anywhere else in the world. And in Asia you can see countries that did structured programs much earlier like Korea and Thailand, the results are showing much 15 years later. So if we are to go in the same direction, we have to do the same. We have to start with the kids.