Customers Wanted

NEW DELHI — Indian automotive suppliers have seen the future and it's spelled E-X-P-O-R-T-S. “Ninety-nine percent of our potential market is outside India,” says A.K. Taneja, senior executive director of Shriram Pistons & Rings Ltd. and one of the new breed of professional managers replacing sons and grandsons in India's family-owned businesses. “Exports,” he adds, “double our growth and give us a competitive advantage.”

Shriram, with four foreign tie-ups, illustrates the new look in parts and components making here. Sales of its USHA-brand pistons, rings, pins and engine valves, manufactured in a tidy 359,000-sq.-ft. (33,300-sq.-m) plant a few miles outside New Delhi, have nearly doubled in the last five years. Exports to Brazil, Germany, Egypt and the U.K. have tripled in the last three.

Quality is high enough that some shipments go to foreign partners: pistons to Kolbenschmidt AG and Honda Motor Co. Ltd.'s foundry, rings to Riken Corp. and valves to Fuji Oozx Inc. Productivity is improving a steady 4% to 5% annually, Mr. Taneja reports. Expansion is under way to increase annual piston output by 20% to 5 million, and he aims to have exports making up one-third of the company's business no later than 2004.

“The main strength of Indian suppliers is their ability to manufacture small-volume packages in a cost-effective and high-quality manner,” says Vishnu Mathur, executive director of the Automotive Component Manufacturers Assn. of India (ACMA). At Shriram, for example, quick set-ups and special purpose non-automated machinery, run by 2,200 well-trained, literate workers, get the job done while maintaining close tolerances of 2 to 3 microns.

Another sign of changing times is what's happening at the Delphi Automotive Systems Inc. plant in Bangalore, which began manufacturing in 1996. There are 178 employees, most cross-trained to run all of the machines. Production batches typically are as few as 300 to 400 units. Delphi supplies half-shafts to a variety of customers here, including small-car market leader Maruti Udyog Ltd., General Motors Corp., Fiat SpA, India's TELCO and aftermarket distributors.

The plant was established to serve domestic customers and has cornered 45% of the Indian market for half-shafts. However, “the domestic market is growing only 7% to 8% a year and we want 16%, so we must pay more attention to exports,” says Plant Manager Jay Londhe. Overseas shipments to Poland and the U.S. have begun, and exports could eventually account for 25% of sales. Moreover, he believes at least 10 of his 30 Indian suppliers can compete on a worldwide basis, as well.

Mr. Londhe says exports are attractive to foreign makers in part because production machinery is 25% to 50% cheaper in India, with quality comparable to what's made abroad. In fact, his colleagues at the Delphi parent company in Saginaw, MI, have lost their skepticism and are becoming interested in sourcing here. And why not, when labor costs are 2.5% of sales compared to 35% in the U.S.

But, says Mr. Londhe, that advantage is offset by the difficulties of operating in India. These include poor communications and transportation; costly and unreliable power; expensive imported raw materials — such as the steel wire needed to make piston rings — and the high cost of money. Mr. Taneja agrees, but notes his single biggest problem is the poor “Made in India” image. Shriram knocks 5% off prices to any foreign customers willing to accept products branded USHA.

What's allowing capable Indian suppliers to overcome handicaps, capitalize on their strengths and transform themselves into world-class operators is the relatively new foreign presence and its influence on the industry. Membership in ACMA has been expanding between 5% and 10% annually and now numbers about 400 companies, over half with foreign licensing agreements or joint ventures with partners from abroad.

Several of the newcomers, including AMB, Robert Bosch GmbH, Delphi, TRW Inc. and Visteon Automotive Systems Corp., are 100% foreign-owned. This foreign presence is primarily a result of suppliers following global automakers into India.

Even more critical than capital tie-ups and new investment has been the inflow of technology that is enabling domestic suppliers to meet international quality standards. “We are now using the same manufacturing processes in India as those in advanced industrial countries,” ACMA's Mr. Mathur says.

Nearly three-quarters of the group's member companies have reached ISO 9000 quality levels, including around 100 with a QS 9000 rating and three with TS 14969. Mr. Mathur proudly reports that one Indian company is a Deming prizewinner, a highly prestigious quality award, and a second may soon be. Indian suppliers began to pay stricter attention to quality about five years ago, when their average reject rate was 30,000 parts per million (PPM) compared with 500 to 700 PPM in Europe and around 300 PPM in Japan. Since then, ACMA members have managed to cut their average reject rate in half. Industry leaders are closing in on the Europeans and Japanese with a reject rate of 500 PPM.

Yet, emphasis on quality has been a difficult transition for India's automotive suppliers due to their small production runs. Total annual vehicle output, including 2- and 3- wheeled vehicles and tractors, as well as commercial vehicles and passenger cars, was only 5.16 million in fiscal 1999-’00, ending March 31. The domestic market is further fragmented by the differing needs of vehicle makers, most of them low-volume producers.

“In a way, it's been good,” says Mr. Mathur, forcing suppliers to “lower their reject rates, rework product, cut prices and become more competitive.” All the same, he sees a shakeout coming for suppliers as well as assemblers and expects weaker companies to fail or merge. But changes in India usually are evolutionary, not revolutionary, and most suppliers are not yet globally competitive. K.K. Swamy, deputy-managing director of Toyota Kirloskar Motor, says bluntly that mindsets have to change. “Indian suppliers here need to improve in quality, delivery and price to compete at international levels.”

Transplants, meanwhile, are realizing that they can manufacture high-quality products for less in India and improve their economies of scale by shipping to overseas markets. Exports, growing 20% per annum, reached $375 million last year, about 10% of the total output of parts and components in India. Mr. Mathur anticipates the number will nearly triple to $1 billion by 2005, reaching $2.5 billion in 2010.

With Ford Motor Co., GM, Honda, Toyota Motor Corp. and other foreign automakers now sourcing up to 80% of their domestic needs in-country, leading suppliers here are candid about their ultimate ambitions. Says Shriram's Mr. Taneja: “We want to become part of their supply chain outside India.” Delphi's Mr. Londhe is equally optimistic. “We work closely with our suppliers, and they are now close to exporting to the U.S.”