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Table of Contents

Page No

Chapter 1. Chapter 2.
2.1 2.2 2.3 2.4 `2.5

Introduction Research Methodology

Primary Objective Hypothesis Research Design Scope of Study On Cost Reduction-Automobile Limitations

Chapter 3
3.1 3.2 3.3 3.4

Critical review of literature

Automobile Market Overview Automobile Domestic Performance Exports of Automobile from India Review of Literature on Cost Reduction

Chapter 4
4.1 4.2 4.3 4.4 4.5 4.5.1 4.5.2 4.5.3

Industry Profile-Automobile
The Pre 1997 Automobile Market The Protected Indian Domestic Automobile Sector The Advent of the Auto Majors-India The After Sales Service Scenario Market Potential of Indian Automobile Segment Vehicle Prices Consumer Finance Infrastructure

4.5.4 4.6

Product Availability The Future-Indian Automobile

Chapter 5
5.1 5.2 5.3

Company Profile-Tata Motors

History & Evolution Area Of Business Tata Motors Successful Car Indica

Chapter 6

Cost Reduction techniques in Tata Motorss Indica

6.1 6.2 6.3 6.4 6.5 6.6 6.7 Outsourcing Strategy Vendor Development Supply Chain Leveraging The Supply Chain Cost Cutting Quality Management Cost Reduction In Energy Consumption Energy Conservation Commitment, Policy and Set Up Electrical Saving ( Compressed Air) Thermal saving & Heat Recovery Projects Implemented During 2004-2005 Energy Conservation Plans and Targets

6.7.1 6.7.2 6.7.3 6.7.4 6.7.5

Chapter 7

SWOT Analysis of Cost Reduction Techniques in Automobile

Chapter 8
8.1 8.2

Main Indicators Focus on Moves to Strengthen Ties with Automobile Manufacturers

8.3 8.4

Investment Margin is Key to Survival Focus on Adequacy of Equity Capital

Chapter 9 Chapter 10 Chapter 11

Bibliography References Annexures

Chapter 1.


This research work related to customer research study, titled Effectiveness Of Cost Reduction Techniques In The Automobile Sector, throws a bucket of ice water in the face of some core business management tenets plus a number of keystone principles of the marketing, distribution channel, advertising and customer relationship management (CRM) industries. Freed from the editing and selective hearing businesses often invokes to avoid hearing unpleasant truths, customers dish out an earful to companies about what they want, what they don't want and what they ignore and how they really make purchase decisions. Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and valuations.

India has became manufacturing Hub for automobile and textile industries. Where FDI Has been done

in these

sectors. So its task for Operational Managers to optimize Cost with respect to Capital employed . This may helped companies to gain maximum Profit with minimum effort. So Competitive Pricing can be done by companies to competitor with their competitors. This Paper aims to study effective methods for Direct Cost reduction techniques that currently being implemented by Automobile . . The auto industry is another beehive of innovation. why so many MNCs were setting up car plants in

Tamil Nadu. Because, the state produces an inexhaustible supply of engineers, maybe 200,000 per year! Many come from private engineering colleges of poor quality. But even if half the graduates are sub-standard, that still

leaves 100,000 competent, innovative technicians. Multinational car companies originally came to India for the potentially huge domestic market. To cut costs, they had to use local components, which initially were of low quality. But soon, the interaction between component manufacturers and MNCs led to not just quality improvement but innovations that nobody had dreamed of earlier. Today, Indian auto component companies are doing computer-aided design and computer-aided manufacturing, constantly coming up with new designs that reduce cost and increase efficiency. This design-savviness has made India a global player, ex-porting over $1 billion worth of components last year. And car exports have shot up to over 100,000 in 2003-04. In the bad old days of the licence-permit raj, companies had no incentive to do R&D. Getting a foreign collaboration approval ensured monopoly profits for years. But the new competition brought in by economic liberalisation in the 1990s made R&D is an essential tool to compete and survive. Tatas Indica car is a prime example. Bajaj Auto once depended on technical know-how from Kawasaki, and TVS on Suzuki. Today, both two-wheeler companies rely overwhel-mingly on in-house R&D: this alo-ne will enable them to withstand the new challenge from Honda. Other miracle Asian economies like Korea and Taiwan used labour-intensive manufacturing as their launching pad, taking advantage of their low wages. Later, they moved up the value chain. India missed the bus of labourintensive exports, but has now caught the jet plane of brain-power exports. This began in computer software. It then spread to design-intensive manufacturing. And it is now sparking an R&D revolution. After booming years of 2002 and 2003 the sales growth is slowing down and the prices are falling. Competition is becoming fiercer. Pressure on profit margins and falling market shares force many local producers to move towards exports to foreign markets. Up to 2010 India is going to become the second biggest automotive market in the world. Forecasters predict the country will be the fourth-largest producer of vehicles in the world by 2008, and may be the third-largest producer by 2010. Indian consumers are demanding high quality cars so prices must be cut and costs minimized. (source : Ernst & Young)

In 2005, India produced nearly five times as many motor vehicles as in the early 1990s. With annual production nearing six million vehicles, it is on pace to overtake Germany as the third largest national vehicle producer, and would trail only the United States and Japan in total vehicle output.

Among the study's key findings are: To Study Cost Reduction techniques practiced in Manufacturing Industries(Automobile)


Study of Effective Cost Reduction techniques in Supply Channel of distribution Network.


Study of Effective Cost Reduction techniques in Procurement of Raw Materials.


Study of Effective Cost Reduction techniques in Operational Management.

The presence of a growing gap between customer expectations and company behaviors, which creates opportunity for some companies and increasing risk to others. At a high level, a company's degree of customer focus was the most important purchase decision factor for customers, and by a very wide margin. In terms of specific company behaviors delivering customer-relevant quality products, as expected, was the most desired factor; very closely and unexpectedly followed by companies empowering their employees.

Chapter 2


Chapter 2. Research Methodology :


Primary Objective:

The founder of the Japan-based 'Kaizen Institute,' Masaaki Imai, defined Kaizen in his book, 'Kaizen - The Key to Japan's Competitive Success' as, "Kaizen means continuous improvement in the personal life, home life, social life and working life." Automobile companies applied Kaizen for continuous improvement in their operations.

When Kaizen is applied to the workplace it means continuous improvement for - managers and workers. Thus, Kaizen involves everyone in an organization to make improvements 'without large capital investments.' It can be seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and processes. The Kaizen strategy begins and ends with people. With Kaizen, an involved leadership guides people continuously to improve their abilities to meet high quality expectations, low cost and on-time delivery, which in turn helps the organization gain a competitive edge

The savings are tremendous in time and material. The engineering resources - both budget and people - freed up from the productivity gains are being reapplied to bring out more new models more quickly." - Jay Wetzel, Vice President and General Manager, GM Technical Center, commenting on the benefits derived from CAD/CAM/CAE tools, in 200

To Study Operations of Automobile Company.(Tata Motors) . (a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network.

(b). (c).

Study of Effective Cost Reduction techniques in Procurement of Raw Materials. Study of Effective Cost Reduction techniques in Operational Management.

According to the Council of Logistics Management Supply Chain Management, the process of planning, implementing and controlling efficient and cost effective flow of materials, in-process inventory, finished goods and related information from point-of-order to point-of-consumption, for the purpose of conforming to customer requirements as efficiently as possible. The automobile industry has undergone significant structural and other changes in the last decade or so. In view of the present globalisation, implementation of lean production and the development of modularisation have changed the relationships between automobile assemblers (OEMs) and their suppliers, especially those in the first tier.Stiff competition among manufacturers will result in more mergers or acquisitions. The challenges automobile manufacturers and suppliers face include improving quality, meeting cost reduction targets and developing time to market.



Is Automobile companies are following certain guidelines for Operations or not: Hypo 1- Network Planning This is one of the most important issues for SCM. Determination of production requirements and inventory levels at the vendors facility for each product and development of transportation flows between these facilities to the warehouses in a best possible way to reduce total production, inventory and ransportation costs with fulfilment of service level requirements.

Hypo 2- IT and Decision Support System This is another important challenge for SCM. Today, SCM is driven by the scope and opportunities appearing due to abundance of data and the savings which can be achieved through efficient analysis of these data. What data should be transferred with its significance and most importantly, what infrastructure is required internally and between its partners is very important. Hypo 3- Supply chain integration and strategic partnering In SCM, information sharing and operational planning are crucial for successfully integrated supply chain.



The study was conducted on part of Business Expansion plan of Automobile industry to expand their existing Business. On this part Exploratory Survey was conducted to know about Operatational Strategies of automobile companies.

This Market research is EXPLORATORY RESEARCH DESIGN. Arguments in favors of EXPLORATORY RESEARCH DESIGN is-It tests the Hypothesis, examines the relationship and comes to a conclusion. It test Hypothesis whether -

Is Automobile Companies using Network Planning ? Is Automobile Companies using IT and Decision Support system ? Is Automobile Companies Using Supply Chain Integration And Strategic Partnering?

Findings and analysis are used for Decision making on account of Surveyed Data.


In This type of Exploratory Research design, involves Collection of Information from Secondary Data. In this Automobile Survey, The whole study is Secondary data based oriented. a. Secondary Data from Internet on Manufacturing Industries b. Journals on Cost reduction Techniques on manufacturing Industries c. Scholarly articles for brief about indian manufacturing industries d. Books on Operational management. e. Review Articles on Supply Chain-Upstream and Down stream f. Study for Opeartion Research Techniques- Transportation Techniques.


Scope of the Study

Among the study's key findings are:

Indian automobile and auto components industry is on a roll and there is an immense scope for management for enhancing the supply chain of the sector. India has become a favourable destination for foreign companies to establish their facilities and form alliances with domestic companies. Low cost of manufacturing and conducive government support have been the major drivers for foreign companies investing in India. Indias large young population, higher GDP growth, and most importantly per capita passenger car penetration is low at 8.5 car per thousand population, which creates great opportunity for industry players to offer an affordable four-wheeler alternative to the two-wheeler customers. According to Planning Commission of India, Indian automobile industry is expected to grow at CAGR of 15% over the next five years. The Indian economy is


now gaining momentum in the world of free trade and liberal movements of goods and services between countries. Therefore, efficiency in supply will be critical for Indias automobile success.

NEED FOR MATERIALS-SYSTEMS APPROACH Improved materials and materials processing can and must play a large role in generating productive and effective responses to the forces that will drive the automotive industry in the future. However, these forces often pull in diverse directions when specific technological actions are considered. For example, aluminum alloys can be used to reduce vehicle weight, thereby reducing emissions and improving fuel economy, but the added materials costs currently offset these advantages for many applications. As a result, steel is still the major material of choice for automobile construction today and will be difficult to supplant for the foreseeable future Indias process-engineering potential can be utilised for redesigning of manufacturing processes to make them more labour intensive and less capital intensive, which will enable the MNCs to reduce their overall costs substantially. For instance, "de-automating" of the production processes, which are applied in Western countries factories, can reduce the overall manufacturing cost of some components by up to 20%. In case of product engineering, India has emerged as a leading destination in the world. Indias strength is in its design, which helps in reducing costs. For instance, redesign of the Maruti Altos steering system has cut down its weight by 15%. India, with its skilled engineers, can design a product very fast, which in turn reduces its development cost and lead times. For example, an Indian supplier took six months to design a steering system for an automaker. It took more than four years to develop similar system with suppliers in the other low-cost countries. Several automobile manufacturers have already set up their auto component facilities in India.




For Automobile Study, Primary Data varies w.r.t Secondary Data on account of theoretical practices in field then practical theories. With increasing disposable incomes and ever-growing burden on the public modes of transport, the Indian passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give value for money, use novel marketing concepts to entice potential buyers and offer good after-sales service. Demand for passenger cars in FY2002 is projected at approximately 970,755 units while production is expected to reach 1,210,000 units. The year is likely to witness a spurt in exports due to excess supply and liberalization of export policy by the government. Some of the future strategies that need to be addressed while entering in to Indian small car market include the redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization. With growing number of two wheeler owners opting for used cars, vehicles with higher resale value and excellent service network are likely to account for a major market share in the near future. Moreover, the introduction of Euro III and Euro IV norms in the near future is likely to increase the scrapping rates of cars. Exports are likely to increase in the near future with the entry of international car giants like Daewoo, Hyundai, Honda Siel, GM and Ford that intend to use India as a manufacturing production base..






A just released customer research study, titled Customers Say What Companies Don't Want to Hear, throws a bucket of ice water in the face of some core business management tenets plus a number of keystone principles of the marketing, advertising and customer relationship management (CRM) industries. Greenberg adds, "Customers Say What Companies Don't Want To Hear proves a mission-critical strategic point. Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and valuations.". Commenting on the findings, Paul Greenberg, author of the industry best-seller CRM at the Speed of Light: Customer Strategies for the 21st Century, says, "Lee and Mangen have verified and amplified with hard data the growing perception that the new breed of customer is here to stay and businesses need to react or risk their very existence.

If you introduce a new vehicle, for example, and the management cannot adequately determine what the market wants, the company is in trouble. Theoretically, the top managers of a company should take up the role of that ideal customer. They should be driving their competitors' vehicles, they should be driving the best-of-breed vehicles, and they should be making cost comparisons. "While a top manager should be the ideal customer, he should also be the greatest critic of his company's products. If the CEO compromises, or is only looking at the margins, then even if he is successful, the company's success will be short lived. - Ratan Tata, the Chairman, Tata Group


Chapter 3.1

Automobile Market Overview

The domestic automobile market has been growing at 14.2 per cent CAGR over the past 4 years (2000-01 to 2004-05), while the auto components market has been growing at 19.2 per cent CAGR (2000-01 to 2003-04). The industry (OEMs and suppliers together) contributed nearly 4 per cent to the countrys GDP in 2003-04. The automotive sector also offers significant employment opportunities. It employs 0.45 million people directly and around 10 million people indirectly. The industrys capabilities in design, engineering and manufacturing have been recognised the world over, and most automotive majors are looking to increasingly source auto components from India. India is emerging as one of the most attractive automotive markets in the world, and is poised to become a key sourcing base for auto components. The table below captures the highlights of the sector in India that illustrates its growing significance.See Annexure A. & B

Indian Automobile Industry Largest three wheeler market in the world 2nd largest two wheeler market in the world 4th largest passenger vehicle market in Asia 4th largest tractor market in the world 5th largest commercial vehicle market in the world


Chapter 3.2

Automobiles - Domestic Performance

The production and domestic sales of the automobiles in India have been growing strongly. While production increased from 4.8 million units in 2000-1 to 8.5 million units in 2004-05 (a CAGR of over 15 per cent), domestic sales during the same period have gone up from 4.6 million to 7.9 million units (CAGR 14.2 per cent). A positive trend in the domestic market is that the growth has not been driven by one or two segments, but is consistent across all key segments. Two wheelers, which constitute the majority of the industry volume, have been growing at a rate of 14.3 per cent, three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 11.3 per cent. Commercial vehicles have been growing at a higher rate of nearly 23.5 per cent, although from a lower base. Since nearly all macro-economic indicators GDP, infrastructure, population demographics, interest rates, etc. are showing a favourable trend, the domestic market for automobiles in India is expected to continue on its growth trajectory.

Chapter 3.3

Exports of automobiles from India

While the domestic sales of automobiles have been increasing at a significant rate, exports have taken a quantum leap in recent years. The exports of automobiles from India have been growing at a CAGR of 39 per cent for the past four years. Exports growth has been spearheaded by the passenger vehicle segment, which has grown at a rate of 57.4 per cent. As a result, the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to 26 per cent in 2004-05. Europe is the biggest importer of cars from the country while predominantly African nations import buses and trucks. The Association of South East Asian Nations (ASEAN) region is the prime destination for Indian two wheelers.


Chapter 3.4


This is easy to understand because the per capita disposable income of the people has gone up remarkably. Over the last five years, per capita personal disposable income has gone up by around 8%, which has increased purchasing capacity of the people in the country. Other factors have also contributed to this high growth in Indian automobile sector. These include lowering age of first car users, shorter replacement cycles, rising duel income families, nw technology, which is lowering cost of ownership, low car penetration in the country and most importantly growing steel production in the country. In addition, wide variety and easily available financing options are also some of the major reasons for surge in demand for automobiles in India. Global automobile manufacturers are consistently streamlining their business process by outsourcing their noncore activities to low-cost countries like India.Global automobile manufacturers are under tremendous pressures to innovate their manufacturing process and at the same time, to reduce costs. In view of the present global competitiveness, they must not only develop new features to strengthen their customer requirements but also follow the environmental and safety standards. In addition, the base price of a car is expected to remain same over the next decade. As a result, companies are forced to source more components from low-cost countries like India According to Mckinsey, global outsourcing of automobile and auto components would reach US$375 billion by 2015 from US$65 billion in 2002. India has plenty of scope to garner this potential. According to the management consulting firm, India has the potential to notch this opportunity and reach up to US$25 billion to emerge as major sourcing destinations along with China, Mexico and Thailand. Besides low cost, India's auto components industry has the major advantage of enormous skills in process, product, and capital engineeringits excellent manufacturing history and good education system.


Human beings think our way is the best, but at Toyota, we are told we have to always change. We believe there is no perfect way, so we continue to search. The goal is to break the current condition through Kaizen." - Shoichiro Toyoda, Chairman, Toyota Motor Corporation, in December 2000 When Kaizen is applied to the workplace it means continuous improvement for - managers and workers. Thus, Kaizen involves everyone in an organization to make improvements 'without large capital investments.' It can be seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and processes. The Kaizen strategy begins and ends with people. With Kaizen, an involved leadership guides people continuously to improve their abilities to meet high quality expectations, low cost and on-time delivery, which in turn helps the organization gain a competitive edge. The production divisions council, which checked the plants objectives occasionally modifying them, taking into account the company's profit targets, replaced the production allowance councils. After approval, these objectives became the Kaizen norm of each plant in terms of production efficiency. The method of determining the production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time really required for worker's operations whereas earlier standard time was fixed on the basis of the best standard time marked in the past


Chapter 4. Industry Profile



Industry Profile

The Trans-nationals were also serious about developing vendors in India. India is bound to become an important destination for the global auto industry. It took the financial turmoil in South East Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market. The new interest in the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India ! Despite projected over capacities--and current losses, carmakers continued to queue up their investments for small car segment. To day there are 10 global auto majorsincluding the $13-billion Suzuki Motor (Japan), the $65-billion Daewoo (South Korea), the $147-billion Ford (US), the $47-billion Fiat (Italy), and the $168-billion General Motors (US) operating in Indian Market.

Chapter 4.1

The Pre 1997 Automobile Market

As late as 1997, the auto market in India was clearly segmented. At the entry level were MUL's 800-cc car--priced between Rs 2.10-lakh and Rs 2.45 lakh--and the Omni, at Rs 1.75 lakh. At the next level were the 993-cc Zen--priced at Rs 3.70 lakh--and the 999-cc Fiat Uno (Rs 3.62 lakh). Then came the 1,300-cc Esteem models--priced between Rs 4.69 lakh and Rs 5.95 lakh--the 1,498-cc Cielo (Rs 6.20 lakh), and the 1,598-cc Opel Astra (Rs 7.52 lakh), followed by premium cars like Mercedes-Benz's E-220 (Rs 22 lakh). Changing Lanes Two events have upset the equations in the price-segmented car market. Daewoo has Changed the lanes with the Cielo, which is now priced at Rs 4.90 lakh, and competes with the Zen's top-end model (Rs 4.40 lakh) and the Esteem's lower-end version (Rs 4.69 lakh). Ceilo has created a new value segment, where the price is not proportionate to the size. Daewoo's strategic response has very clearly redefined differentiation, from price or size to value.


Hyundai Motors India, a subsidiary of the $27-billion Hyundai of South Korea launched its 999-cc Santro at the Auto Expo 1998 in Delhi. The model comes in five variants, with the non-airconditioned, manual transmission model priced at Rs 2.80 lakh, and the semiautomatic, air-conditioned GLS model priced between Rs 3.15 lakh and Rs 4 lakh. Clearly,Hyundai's strategy is aimed at taking on the market leader, Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh, it is also bridging the gap between the small and the middle car segments. At present Marutis Esteem LX is priced Rs 70,000 more than the Santro GLS, while the Cielo is priced Rs 90,000 more. The further entry of new players will only blur the segments. New entrants will be involved in price war to find a foothold in the Indian market. Few of the examples include: TELCO's positioning of its 1,400-cc Indica car--launched in November, 1998 and priced close to Marutis 800-cc model as a small car;and Honda sneaking its 1,300-cc City into the segment vacated by the Cielo although it is an accepted fact that pricing or positioning cannot be done in isolation. In a crowded market, that must depend on the available strategic opportunities." By creating new segments, companies can broaden their market base, increase capacity utilization levels, pre-empt competitors market entry moves and importantly lower costs. While Maruti did that by launching three versions of the Esteem, TELCO accomplished it by using a common platform for the Sumo, the Estate and the Sierra models; Hyundai is also planning to come to the market with five variants in near future. At high volumes, costs can be lowered by more than 20 per cent across variants due to experience curve effect. Configuring the sticker price for a car in the market today is no more a functional decision. It has become a strategic decision as it identifies the key segments response


elasticity to the market offer. The two key inhibiting factors for the poor response to the auto war fare in Indian Car Market are basically the low per capita income at $350 (Rs 14,000 at current prices) and the high manufacturing costs. A large part of the population expected to graduate from two wheelers to four wheelers has not responded as they were supposed to during this period of time. The domestic auto giant Maruti Udyog limited, still forces the new players to benchmark themselves against its products which roll out from a depreciated, yet high-volume plant. It enjoys the fast mover as well as the cost advantage with the higher capacity utilisation that helps him to cut costs across as more cars you make, the cheaper they get. With the worlds second largest and fastest-growing population, there is no doubt that Indias potential in both economic and population terms and the effect it will have on the auto industry in the next years. During the last two years, export from this sector has grown significantly, owing mainly to the export of cars and two-threewheelers. The industry is characterized by a very high percentage (75%) of production in the 2/3 wheeler sector. India ranks as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world. India today is also the second largest manufacturer of tractors, as well. The industry has intense forward and backward integration The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living standards of the middle class and an increase in their disposable incomes. Moreover, the liberalization steps, such as, relaxation of the foreign exchange and equity regulations, reduction of tariffs on imports, and refining the banking policies, initiated by the Government of India, have played an equally important role in bringing the Indian Automotive industry to great heights. It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years. Thus, the sale of cars has reached a figure of 1 million users and is expected to increase further. It's also to be noted that the


demand for luxurious models, SUVs, and mini-cars for family owners, have shot up, largely due to increase in the consumer's buying capacity.

The Indian automotive market

India country fact file Population Per Capita GDP (PPP) GDP Growth Rate Total automotive sales 2005 Total automotive production 2005 Market growth 2005 vs 2004 Best sold model PC segment 2004 Best sold model LCV segment 2004

2005 1, 080, 264,388 $3,400 7.1% 1, 439,604 (889,333)* 1, 643,460 (1, 000,567)* 7.0% (6.4%)* Maruti Alto (16.8%) ** Maruti Omni (21.3%) **

(passenger cars) ; ** (market share in segment) Source:

Chapter 4.2

The Protected Indian Domestic Automobile Sector

MUL, which set up shop in 1984, had 10 long years of relative protection to emerge as a formidable competitor with high volume and a strong brand image in the mind of Indian customers. When the industry was deregulated in 1993, the cost barrier had become so high that new companies could not dare to look at the small car segment. Instead, they settled for the mid-size segment, where both volumes and margins were expected to be high. However, a shakeout in the Indian mid-size car segment, the slowdown in international auto sales pushed


transnational auto majors into India which have now turned the tide against MUL..The present generation small cars launched recently are more contemporary in terms of both design and technology while Maruti's small-car technology is at least a decade old.

Keeping the future growth potential of Indian market in mind, the auto majors are prepared to bear losses for the next 10 years .This will help them to gain a good market share the long run and provide breathing space to counter the strategic moves of the leader. Hence, the narrowing price differential between the old and the new small cars is the first call of the auto majors against Maruti in Indian Market. If Maruti has to try and match the features of new generation small cars, it would mean additional costs. On the contrary, if Maruti decides to hold its price line and add new features, it could translate into losses or at least low profits. But MUL can still bank on at least two Suzuki models: the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its rivals in the future.

Chapter 4.3

The Advent of the Auto Majors

Besides bracing up for losses in the initial years, auto majors like Hyundai and Daewoo are banking on exports too. At the moment export may look unattractive because of the South Asian meltdown but in the long run, low production costs and component-manufacturing skills will make India- made cars competitive at global market place. Hence they are looking India as a production base to cater to the growing Asian market by way of outsourcing from Indian manufacturing base. However many a hurdles they have to cross on the journey to profitability.

The investments necessary for a large plant are simply huge. Daewoo has, so far, sunk Rs 2,700 crore in a


1.20-lakh-unit-a-year plant. Unlike China, which has restricted the number of companies India has followed an open door policy for car manufacturers, which has resulted in emergence of fragmented markets with distributed capacity.

An Original Equipment Manufacturer (OEM) needs a minimum economic size of 1.50 lakh cars a year to attract vendor interest. Daewoo was able to slash the Cielo's price as it is cheaper to import components because of the devaluation of the South Asian currencies. The auto majors are lobbying with the government to ease the strict indigenisation norms in the new automobile policy, so that they can import the components from other countries. This will help them to cut the prices and to go head on the market leader particularly in a price responsive market like that of small car segment. The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits (CKDs) , which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the imports will become costlier and compel companies to localize their manufacture. The exposure to currency fluctuations, which crippled the four Japanese light commercial vehicle projects in the late 1980s, is also minimal when a company localizes component manufacture. Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located close to the manufacturing unit. If Maruti is a success story, it is only because it indigenised 85 per cent of its components within five years of going on-stream. Then, there's the question of servicing the replacement market for spares. Customers, typically, expect components to be available locally, and at competitive prices. Imports cannot guarantee that but it' is a tremendous job to localize components at the right quality and price given the supplier problems in prevalent in India.


An Original Equipment Manufacturers competitive advantage lies in its marketing skills. Having achieved price and technology parity, it can easily woo the consumer with attractive financing schemes and superior after-sales service. Nudged by the competition, most auto players have a clutch of schemes to offer: Daewoo Motors India provides interestfree car finance, Ford Motor and General Motors have slashed interest rates. MUL's joint venture finance company, Maruti Countrywide, is offering loans at 13.50 per cent when the prevailing lending rate is 17 per cent and above.

Chapter 4.4

The After Sales Service Scenario

After sales service for cars is as critical as showroom deals. Maruti services its 2 million customers through an army of 174 dealers spread across the country. It will be impossible for a company to duplicate such infrastructure, particularly with investments in a metro-based showroom going up to Rs 4 crore. Margins in retailing are moving from actual sales to after sales service." The problem of price war is evident with Auto majors as much as with dealers. In a bid to woo the customers, dealers, particularly in non-prime locations, are cutting their margins. It will not be surprising if single-brand dealers eventually turn into multi-brand sellers in future. Doing so will benefit all the three constituents in the marketing chain: the OEM, the dealer, and the buyer. The carmaker can expand his reach without expensive investment; the dealer can increase his revenue; and the customer gets a variety of models and brands under one roof in future. The local partner will be the loser in this fierce battle. Without the means to make either matching equity or technological investment, the Indian collaborator will be driven off the road.


It has already happened to the Rs 166-crore DCM, which tied up with Daewoo Motors, and can happen to both the Rs 1,258-crore Hindustan Motors (Partner:: General Motors) and the Rs 3,606.57 crore Mahindra & Mahindra (Partner :Ford Motor). So they are reconciled to adopting a minority role or becoming auto component vendors. This list includes Siddharth Shriram's Rs 430-crore Siel (Partner: Honda), the Kirloskars (Partner :Toyota) and the Munjals of the Rs 2,000-crore Hero Group (Partner :BMW). And the evidence is compelling e.g. Hindusthan Motors has a passive role in its joint venture with General Motors although the Opel Astra is manufactured at HM's Halol plant in Gujarat. The same can be forecasted about Mahindra and Mahindras joint venture with Ford Motor. What can prolong the life of the joint venture is distribution muscle, as it will take at least five years for a transnational auto major to build a strong distribution channel in this country. By all accounts, the auto industry is headed for a glut. With an estimated demand for cars to touch 9 lakhs in 2001-2002, the installed capacity will rise to 16 lakhs. So the current growth rate in Indian market is not sustainable. There will be at least two years of stagnant or declining demand before the resumption of the growth trend.There is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002. And the car numbers will add up to around 6 lakh a year. That will engender a shakeout, which is already afoot in the other Asian markets. For instance, poor off -take and a consequent build-up of car inventories has led to a fierce price-war in China.

Chapter 4.5

Market Potential of Indian Automobile Segment

The demand for the small car will continue to drive growth for the next five years. Of the total sales of Maruti in 2000-2001around 85 per cent were small cars. The Esteem's sales dropped in the same period, where as the small cars drove MUL's sales. So demand for small cars will leap only if certain conditions are fulfilled:


Rise in the Income Levels In the US, auto demand rises by 4 per cent for every 1 per cent increase in the real Gross Domestic Product but this is irrelevant for India as only the top 1.50 per cent of the population can afford a car. The demand can shoot up if the income levels of the top 5 per cent continue to rise in future. Level Of Motorization It is stagnant at 1.70 cars per 1,000 people for decades. However, in the post-liberalization period, the motorization level has leaped to 3.70 cars per 1,000. Although it is still lower than the levels in the developed markets, motorization is bound to rise further in the coming years.

Chapter 4.5.1

Vehicle Prices.

Falling imports and excise duties coupled with competition will continue to boost demand and the prices are likely to fall further at least in the short run.

Chapter 4.5.2

Consumer Finance.

Over 60 per cent of customers opt for consumer finance. That figure could go up if interest rates continue to fall.

Chapter 4.5.3


Traffic congestion and bad roads could deter potential buyers from going for small cars particularly in small cities of India. The future is not very heartening in this aspect.

Chapter 4.5.4

Product Availability

As manufacturers shift their attention to the small car, more and more people will be able to afford it and demand will only rise in the future period of time.


Chapter 4.6

The Future-Indian Automobile

There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts, yet there is no doubt that Indian car market is going to increasingly resemble the latter. In the West, the industry is likely to be dominated by three or four major players. With a likely demand of 11 lakh cars by 2006, there will be a few niche players like BMW, Mercedes-Benz, and Audi with luxury cars to offer. Unless car manufacturers have a large range of vehicle to offer, they will be unable to subsidize their costlier models. The market will consolidate to few segments. The carmaker has to make diverse models based on diverse and flexible platforms. Products like the stripped-down economy car, the sports utility vehicle or the van should be built on the same platform. For the price-sensitive customers, there can be a no-frills version; a loaded version for the middle customer and luxury car manufacturers can target the high-end customers. The fortunes of the autoobile industry will continue to hinge on the large, price sensitive customers, who will graduate to the higher end of the market over a period of time. Until then, the small car will continue to drive demand and most of the car-manufacturers are gearing up for this eventuality.


Chapter 5

Company Profile Tata Motors



Company Profile:Tata Motors

Tata Motors, previously known as Tata Engineering and Locomotive Co Ltd (TELCO), is one of the largest companies in the Tata Group, and one of India's largest business houses. Tata Motors is India's leading commercial vehicle manufacturer and the third largest passenger car manufacturer. The company is the sixth largest truck manufacturer in the world. Tata Motors recently received the Balanced Scorecard Collaborative Hall of Fame Award for having achieved a significant turnaround of its overall performance. A comprehensive quality improvement and cost cutting initiative in September 2000, has played an important role in the company's turnaround, from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first quarter of 2002-2003. Tata Engineering and Locomotive Company (TELCO)

Chapter 5.1

History & Evolution

Tata Engineering and Locomotive Company Ltd, popularly known as Telco was incorporated in 1945 to manufacture steam locomotives. In 1954, the company diversified into automobile manufacturing, through a collaboration with Daimler-Benz for the manufacture of commercial vehicles. By the time the collaboration ended in 1969, Telco had not only become an independent producer of medium commercial vehicles (MCVs) with negligible import content,but had developed the capability of designing and developing such vehicles. The Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light commercial vehicles (LCVs), implementing one expansion program after another. To sustain the unrelenting pace of its growth, Telco added machining, press and assembly


capacities, set up its own forge and foundries, and virtually created the countrys automobile ancillary industry. The Company even developed facilities for designing and manufacturing state-of-the-art machine tools, material handling equipment, dies and fixtures. To accommodate the Companys growing activity base, a large, modern complex was set up at Pune in western India and a new plant became operational at Lucknow, in the north of the country. To provide a business focus for the Companys main activity areas, Telco has created twobusiness units -Automobiles and Construction Equipment both of which have notched up record-breaking results. Telco today has a domestic market share of 68% in the MCV/HCV segment, 64% in the LCV segment and 32% in the multi-utility segment. Apart from commercial vehicles, which range from 1 ton to 35 tons GVW, Telcos automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle. All these products have been developed inhouse by the Companys own R&D Center. This Center is equipped with the latest computeraided design hardware and software, enabling the company to respond quickly to changing customer needs, both in India and abroad. Telco has been exporting its products since 1969 and currently exports about a tenth of its output. Export markets include the Middle East, Africa and Southeast Asia, as well as developed countries in Europe like France, UK and Spain. It is intended that exports should account for 20% of the automobiles sold by the Company. Telcos second line of business, Construction Equipment, has also grown rapidly and the Company currently commands a 61% share in the excavator market and 90% in the crawler cranes market in India. The hydraulically operated construction equipment made by the company is in collaboration with Hitachi


Construction Machinery Limited of Japan. There are ambitious plans for widening the range of excavators made by the company and for adding new lines of construction equipment. A recent addition to the excavator range is Backhoe Loader. Telco is one of India's largest private sector companies. With a turnover of Rs 66.37 billion, it is the country's leading commercial vehicle manufacturer and the worlds sixth largest automobile company. The widely successful Tata Indica, which is Euro 1 and 2 compliant, is the countrys first indigenously designed, developed and manufactured passenger car. The company also makes several other passengers vehicles, including the Safari, the Sumo, the Sierra, the Tata Estate, and the Tatamobile pick-up. The companys products have received wide acceptance not only in India but also in markets in the Middle East, Asia, Africa and Europe

Chapter 5.2

Areas of business

The company manufactures medium, heavy and light commercial vehicles, multi-utility vehicles and passenger cars. It also makes general and special purpose machines for automotive applications at its machine tool division. These include NC/CNC horizontal and inline machining centers, flexible manufacturing systems, CNC cylindrical grinding machines, and robots for welding, cutting, painting and other applications. In 1999, the companys revenues from its four manufacturing plants at three locations in India were Rs 66.37 billion ($1,573.5 million). In 1998, they were Rs 70.26 billion ($1,893 million). (The average exchange rate in 1999 was Rs 42.18 to one US dollar.)


In the year ended 31 March 2000, the companys total exports were worth about Rs 505.53 crore, against about Rs 600.78 crore in the previous year.


The companys manufacturing plants in India are at Jamshedpur in Bihar, Pimpri and Chinchwad near Pune in Maharashtra, and Lucknow in Uttar Pradesh. A fifth manufacturing facility is being set up at Dharwad in Karnataka.

Collaborations The Company has technical tie-ups with:

The Institute of Development in Automotive Engineering, S.P.A., Italy, for assistance in small car body design and styling;

Nachi Fujikoshi Corporation, Japan, for robots for welding, painting and other automotive applications;

Le Moteur Moderne, France, for the development of diesel and petrol engines for passenger cars; and Robert Bausch GmbH, Germany, for application work on the engine management system for 4 PL petrol engines


Chapter 5.3

Tata Motors Successful Car Indica

TELCO launched Indica when the TATA group was in red. Telco chairman Ratan Tata said that the 1400 cc car Indica would drive the company out of the red. Tata, while talking to reporters at the IETF '99 in a videoconference from Mumbai said that the overwhelming response of over 1.25 lakh initial bookings for the Indica had come as a surprise. "It seems we touched the national chord somewhere as people responded to the fact that this is the first Indian car," said Tata. "Indica is not the end of the road for Telco when it comes to passenger cars. It is just the beginning, as there are more to come", said Tata, adding that the company was working on another mid-size car after Indica. Telco had to produce 60,000 cars a year to break-even. The group created two organizations within Telco, one dealing with commercial vehicles and the other with passenger cars. The company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions would function as two separate business units. Telco had a strategy to go for exports after addressing the initial requirements of the domestic market.

Awards and Recognition In May 2000 ,Tata Engineering and Locomotive Company Ltd. (Telco) won a national award for successful indigenous technology used in the Indica car project. The award titled 'National award for successful commercialization of indigenous technology by an industrial concern' for indigenous development and commercialization of Tata Indica car was presented by the minister for human resource development, science and technology and ocean development,

Dr. Murli Manohar Joshi.


In November 1999 Telco was awarded the 'Department of scientific and industrial research national award for indigenous design of the Tata Indica. It was the first company in India to implement stringent emission norms well ahead of the mandate dates. Promotions The Indica advertising made interest for the car go into overdrive. The campaign revolved around the premise that the Indica would not just meet people's expectations, it would exceed them. Every advertisement has a story to tell

Pre launch Campaign The Indica campaign began in the right earnest in December 1998. It was advertised as the launch of a car that will spell doom for the small cars. It was directly aimed at Maruti 800. The ad line used in the first campaign was Car makers will suddenly remember all the thing they forgot to give you. This hinted that Indica would have more features than any of the existing small cars. Indica used the catch lines like More car per Car More dreams per car to suggest that Indica will be bigger in size to the existing small cars yet be in the small car category. It competes with the mid size cars on size and give them a run for their money with its cheaper price tag. At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and that the n end of the year (1998) would be the end of the small cars. Launch Campaign The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same segment. It promised the customers more than the current offerings. Its first advertisement carried the following catch line 50cc moped, 100cc bike 800cc car. Time you asked for more. It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has removed those very defects and presented a very sophisticated and modern car to the Indian customer. It even 37

pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to Maruti 800. The advertisement read Box shaped, bubble shaped, wedge shaped. But then Gentlemen prefer curves The launch campaign also focussed on the roomy interiors of Indica, a feature not offered by Maruti at that point of time. Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch campaign of Tata Indica.

Post Launch Campaigns

While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the superior after sales service and longer warranty periods offered by Indica. Telco was the first company to offer an 18-month warranty period on engine parts. The most famous line used during this campaign was We could go on and on about service or give you the one word summary. TATA. While their main adversary was the Maruti 800 ,Telco felt that it could also tap the mid size segment using the selling point of space given by Indica. They carried a campaign, which said Forget small cars, we even make big cars feel small It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car manufacturers to do so. It also highlighted the concrete wall safety test that Indica withstands and tried to showcase the car as a safe and strong car.


Chapter 6



Chapter 6

Tata Indica - The Making Of The Small Car with objective of minimizing costs.

The research provides an understanding of the issues concerning the supply chain management system at Telco in regard to its small car, Indica. It outlines how Telco, built the supply chain for the car by leveraging its existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile integrator and from a product-centric company to competence- centric company. The case discusses various components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing costs.

Telcos Indica not only has a new plant and a new set of people manning the plant, but also new manufacturing philosophies, new systems and new processes in place, as it gets ready to take on its competition in the millennium to come. - Business India, March 22, 1999.

In the early 1990s, Telcos Chairman Ratan Tata (Tata), was flirting with the idea of developing a small car. By mid-1994 a rudimentary design was in place. In 1995, Telco announced that it planned to build a car which would be priced close to the Maruti 800, shaped like the Zen, and spacious as an Ambassador. Producing the new small car Indica represented a different kind of challenge for Telco. Should Tata succeed, he would change the face of Telco. As a truck-maker, Telco was so integrated that it even made it own castings and

forgings. As an automaker, it would have to focus on the value chain that stretched between raw materials and after-sale


service as well as assembling the parts into the complete automobile.

For its new venture, Telco outsourced 80% of the components (1,200 of its 1,500-plus parts), from 200-odd vendors. To develop the Indica, Telco had to combine the learnings from its predecessors with its own unique supply chain management strategies to ensure a sustainable low-cost platform. By learning to build and manage a supply chain, it would set the ground for leveraging the capabilities of the automotive component-manufacturers who already operated in its target markets. In other words, Telco planned to use its skills as an integrator--bringing together products and services from both upstream and downstream operations, and packaging them for the customer under a brand name in its new venture.

Globally, a car could be built in 48 months with an investment of US $ 3 billion (Rs 127.5 billion). Indica, was built in 31 months on a budget of Rs 17 billion. This seemed to have been possible by focussing on the supply chain

Chapter 6.1


For Telco, outsourcing seemed to be one of the most difficult aspects of producing the Indica. Unlike global automobile majors, Ford Motors or General Motors, which had a global vendor-base that could be replicated on a smaller scale in India, Telco had to create a vendor-base from scratch. Moreover, it did not have the expertise either to design a car or to build an engine for it.

Against this background, Telco had to take its primary make-or-buy decisions for the key inputs-design, engine, and transmission. Telco decided to shop globally for the best deals and use its own expertise to make whatever modifications were needed


(Refer Table I for the components outsourced by Telco). TABLE I


Components 5 door hatchback Engine Assembly Line Presses Pistons and Piston rings Electrical components and fuel injection systems Steering systems Clutch facings and rear (drum) brake linings Seating Systems Radiators Rear view mirrors Front and rear bumper, dash-board, inside Supplier I.DE.A, Italy Institut Francais du Petrol, France Nissans Plant, Australia Mercedes Benz India Pistons Lucas-TVS Rane TRW Steering Systems Sundaram Brake Linings (SBL) Tata-Johnson Controls Tata-Toyo Tata-Ficosa

Tata-Auto Plastics trims Air conditioning kits Subros Ltd Wind screens and windows Asahi Glass Fuel lines Imperial Auto Differential assemblies Sona Steering Sheet metal items JBM Tools Source: Business Today, March 22, 1999 and December 7, 1999.

Telco turned to the Italian company, I.DE.A, for the product-design. It bought the engine from the Institut Francais du Petrol of France, and applied its engineering skills to adapt the engine requirements. The transmission was developed in-house at its Engineering Research Centre (ERC), at Pune. Of the Rs 2.5 billion it spent on 42

designing the Indica, the major share went in buying design tools and training its engineers in new skills. Telcos engineers traveled regularly to the sites of its technology suppliers, to receive training before the actual delivery of the machines.

Telco also outsourced its assembly line from Nissans plant in Australia for just Rs 900 million. Telco transplanted it at its factory at Chikli near Pune, which was newly set up for Indica. A new assembly line of

the same proportions would have cost at least Rs 4 billion. Again, of the 3 presses for the Indica, only 1 was new, acquired for Rs 900 million, while the other 2 were bought second-hand from Mercedes-Benz and modified to suit the Indica.

Telcos engineers and the ERC did the application engineering, programming, installation, and commissioning to save around 45% of the technology costs. The tooling for the car too was supplied internally by Telcos machine tool division. To manage the supply chain better, Telco kept the number of suppliers for Indica to just 200 as compared to about 1,000 for trucks. Most of the parts were supplied by Telcos traditional suppliers TVS, Rane Group and Tata Auto Component Systems (Taco) who were single source suppliers. Pressed parts, assemblies, and drive shafts were sourced from single vendors.

Chapter 6.2


Once Telco made its make-or-buy choices, the next step was to identify the vendors. Most of the parts that went into making Telco were sourced locally. Except for some sheet metal parts, cylindrical gaskets, and belts--which accounted for 2% of the component value, the Indica was totally indigenous[1]. K. Mahesh, CEO, Sundaram Brake


Linings, said, Localisation of components is the most important challenge a new manufacturer faces. It is a timeconsuming and painstaking process.

Telco employed a simple yardstick for selecting suppliers: the ability to supply components at the negotiated quality, cost, and quantities. In the first stage of selection, an initial assessment team from Telco evaluated the supplier. This was followed by self-evaluation of the supplier, based on a format provided by Telco. Then there was a quality systems survey, carried out by a Telco quality audit team.

This was followed by design validation. And then there was a manufacturing validation to ensure that the supplier was following the proper manufacturing processes. This was followed by the Production Part Approval Process (PPAP), which certified the production quality. R. Chakraborty (Chakraborty), senior deputy general manager, materials & supplier quality improvement group, said, When a vendor reached this stage, our comfort level in dealing with him goes up considerably, with regard to quality and his ability to supply material to us. We feel that he has a proper production process in place to ensure quality and timely supplies. Only a handful of vendors met Telcos stringent requirements. Telco set up Supplier Quality Improvement Teams to improve the vendors systems to ensure that they produced defect-free parts.

It applied a 13-step Quality Improvement Programme, covering supplier self-evaluation, thorough designvalidation, and audit of supplier quality. Another key to Telcos successful vendor-base was a modern system of process management. Telcos target-costing was broken up into vendor-wise cost targets, and the suppliers had to carry out their own value-engineering exercises to lower cost and improve quality.

For example, India Pistons, which supplied the pistons and piston rings, walked away with the Indica order


because it benchmarked itself against supplies to Maruti Udyog; whereas the other vendors benchmarked themselves against pistons supplied to Telcos commercial vehicles.

India Pistons invested Rs 1.5 million in toolings, and Rs 25 million in a separate line at its Maraimalai Nagar (Tamil Nadu) facility. N. Venkatramani, CEO, India Pistons, commented, TELCO is very particular about logistics, that raw materials have a supply trace, be ready for assembly, need no inspection. It is a demanding customer.

Telco even involved its vendors in the design-process to give suppliers more lead time to innovate, and for better supply chain coordination. Commented T.K. Balaji, CEO, Lucas-TVS, which supplied electrical components and fuel-injection systems for the Indica, By making vendors its partner early, TELCO ensured both quality and price-conformity. Late involvement would have yielded different results. M.S. Kumar, Director & CEO, Rane TRW Steering Systems (Rane), which supplied the steering systems for the Indica,

TELCO has been extremely supportive, making available its entire R&D resources to our engineers. It is one of the bes

experiences we have had in product-development. Telco wanted Rane to design a system that would meet the peculiarit Indian road conditions.

Besides offering both manual and power systems, Rane also had to come out with a left-hand drive variant for the expor

Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier, and its engine

displacement, higher. Indica was not only compact, which left less space, but also heavy, which strained the system. Tel Rane to benchmark the maneuverability of the Indica against the Zen, a much-lighter car. Rane took about 16 months to develop and get the steering system approved, spending close to 2 man-years on it. It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10 million for the manual steering system. Said P.R. Sarathy, President, Rane (Madras), TELCO gave us price-


targets. We worked within them, using value-engineering and concurrent engineering to lower our development costs. For all effective purposes, we were an arm of TELCO during the process. In the case of small vendors, Telco examined their processes- and cost-levels. Telco configured its suppliers in 2 tiers. Tier I suppliers had to assemble sub-systems using components provided by Tier II vendors.

Telco asked the latter to supply products at low margins to the former. On its part, Telco helped them lower their costs by solving quality-related problems. For instance, SBL, which supplied clutch-facings and rear (drum) brake linings for the Indica, developed them in-house. V.R. Janardhanam, President, SBL, remarked, Despite its size, Telco has a lot of humility. It is willing to work with even the smallest of vendors to meet its targets.

A typical brake-lining usually went through the following steps: the raw material was converted into slabs; the slab was cut into the required length; the cut piece went through 2 stages of grinding for the inner and the outer diameters; then, the piece was drilled, and, finally, champered. But SBL brought down the number of operations to 3: the raw material was straightaway converted into pieces of required length, and the grinding was done to only the outer diameter.

And the company saved 15% because of this single-piece flow technique. K. Pandarinath, Deputy General Manager (Research), SBL, commented, Telco is a transparent company. It allowed us to use all their facilities as long as it helps develop a better product. Our engineers spent several weeks working with Telcos engineers on perfecting the brake-linings.

Chapter 6.3



To keep its transaction costs low, Telco configured its supply chain on a just-in-time basis. All high-value components were delivered daily, and in the case of nearby suppliers, twice a day. Vendors who were located far away from Pune set up local warehouses near the plant. The rationale for the relocation: transportation costs alone accounted for 45% of the total logistics costs for a company, delays in supplies added to costs in terms of machine down-time at the plant. Meanwhile, on the shop floor, where the assembly line was located, Telco had done away with the traditional store function.

There was no material store in the Pune plant of Telco. The truck loaded with the material first entered the factory at the material gate where there was a documentation center. A person at this center checked whether the material was scheduled to arrive or not, by keying in the part number and the supplier code. If the material was not scheduled to arrive, the documents were not processed further and the truck was not allowed to enter the factory premises. Once it was cleared at the gate, the truck proceeded to the receiving center.

Once the items were unloaded, unpacked and cleared for quantity and quality, they were moved into the transit area. From there they went into what was called the super market. The super market was close to the assembly line. In the super market, the materials were arranged in such a way that the workers could easily access all the material required on the assembly line without wasting much time and effort.

The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs were also low. Again the manpower required to handle the inventories was also low. For Telco, a crucial link in the supply chain was its ability to forecast demand accurately, which would help the vendor plan his production-schedule in advance, thus lowering costs. Telco and Concorde employed market research agencies to help forecast demand through trend analysis, using the historical data technique. It used a complex web of correlation involving the countrys economic situation, competitors products, and


their USPs. To ensure quick flow of information along the value chain, Telco electronically linked its demand forecasts to production, and backwards to its suppliers.

All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line to the Pune plant. This reduced the order-processing time by 80%. Analysts felt that by being online, Telco would save a minimum of 4 days from the order-to-despatch lead-time. For speedy delivery, Telco resorted to inter-location transfers of the product between dealerships. This would ensure movement of the product to a place where there was more demand.

This would make a big difference to finished goods inventory management once Telco started producing at optimum capacity. Telco also trimmed costs by making Concorde leaner than other dealerships, with just 3 levels: managing director, general managers, and managers(3). Each of Concordes(1) general managers worked as profit-centre heads of their individual business regions, and reported directly to the managing director.

Added, A.K. Seth, General Manager (Delhi), Concorde, The company wanted to create a lean and responsive network, with the primary objective being to meet customer requirements as quickly as possible.

(1) (2)

Telcos dealer for Indica. It had 9 dealerships and 25 outlets. Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and

business users. A VSAT end user needs a box that interfaces between the users computer and an outside antenna with transceiver. The transceiver receives or sends a signal to a satellite transponder in the sky. The satellite sends and receives signals from an earth station computer that acts as a hub for the system. Each end user is interconnected with the hub station via the satellite. For one end user to communicate with another, each transmission has to first go to the hub station which transmits it via the satellite to the other end users VSAT. VSAT handles data, voice and video signals. 48


Most other car-marketers in the country operated with a minimum of 5 levels.

Chapter 6.4


Indica marked the beginning of Telcos drive into Indias auto market as an integrator with a multi-product portfolio. Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be the core around which it would build its future car business. Analysts also felt that Tata would use the supply chain that fed the Indica to feed a whole range of Telco cars of the future. D.C. Anand, CEO, Anand Group, said, Telcos capacity will be tested by how many new models it can come up with--and how soon. Is Telco in a position to do so? Four years ago, I would have said no. Today, I am not going to underestimate their capacity. They have demonstrated it.

Business Today wrote, Leveraging the low-cost supply chain that it has built, Telco will launch a series of other cars--priced both below and above the Indica, straddling the entire spectrum--each of which will be progressively easier to integrate. The supply infrastructure would become economical as the volume of the business that Telco offered its vendors increased. The volume of business would increase with a larger number of cars. The learning that it was extracting from the Indica supply chain would also be available to the company as it moved into other products.

There seemed to be a distinct opportunity for a smaller, cheaper car, positioned as an entry-level for the first-time


buyer. Analysts felt that Telcos supply chain management would become the pivot around which it could assemble its passenger-car business.

Chapter 6.5

Cost Cutting

To cut costs, Tata Motors tried innovative techniques such as zero-based costing. The company's engineers reworked the cost of components all over again. For example, earlier, Tata Motors paid for its forged components on a cost-plus basis as claimed by a vendor. Under the new system, it paid a price depending on the weight of the forging, leading to savings of 25%. Prakash M Telang, senior vice president (manufacturing), was appointed as the 'cost-erosion champion' and put in charge of the entire initiative. Four specific areas were identified:

-Direct material costs Reduction Projects -Inventory Analysis-Just in Time -Transporation Analysis -Stock keeping Unit Analysis.

Chapter 6.6

Quality Management

Tata Motors started a comprehensive quality improvement initiative in September 2000. The initiative played an important role in the company's turnaround, from a loss of Rs.500 crores in the year ended March 2001 to a profit of Rs.28 crores in the first quarter of 2002-03. Every year, about a quarter of Tata Motors' workforce went


through training courses, which were rated highly in the Indian engineering industry. Personnel were trained before building workshops. In case of imported machines, engineers and workers wer sent to the foreign manufacturer's facilities to receive training well before the arrival of the machine.


Chapter 6.7

Cost Reduction in Energy Consumption

By implementing various energy conservation projects there has been a consistent decrease in the specific Electrical and Thermal Energy Consumption.


Chapter 6.7.1 Energy Conservation Commitment, Policy and Set Up

Tata Motors, considers Energy Saving as a multi disciplinary approach. Even the smallest cost reduction is going to add directly to its profits in bottom line. Plant energy profile consist of Electricity, Gas, Oil, Light Diesel Oil, High Speed Diesel Oil, Kerosene and Water. Budget provisions are made exclusively for Energy conservation management. ( ECON ) Energy conservation plans, policy and structure are reviewed periodically. Plant has conducted In house seminar on Energy Conservation with external faculties like National Productivity Council, Atlas Copco, Enercon, Croma Engg and Thermax which was attended by participants from all plants of Auto Sector. Senior executives have attended Energy Conservation Meet organized by CII and visited Reliance Industries, Godrej, ICICI Towers to share energy conservation ideas.Energy Conservation week is celebrated every year from 14th December to 21st December. Poster and slogan competition on Energy saving was conducted in every year. Energy Management policy is displayed every where in the plant for creating the energy conservation awareness. The company has formed cross functional teams for cost reduction through Energy savings. Each team comprises of Senior Executives as facilitators with members from each product units. Safety and Environment Department is also closely attached with Energy Conservation Cell. Top management like president, vice- president, General managers actively participate in the energy conservation program and support the energy conservation plans by providing the necessary budgetary and morale help. The importance of energy conservation was emphasized through various forums and TPM (Total Productive Maintenance) methodology.By using TPM methodology plant has implemented more than 200 kaizens ( small improvements) like: - Removal of unwanted motors, Continuous to intermittent operating of motors, Timer for Blowers / Heaters, Providing air pressure regulators,Stopping idle running of motors, Photo cell control for lighting, Combining activities etc.


Energy Management Policy

Promote Energy saving and conservation of resources. Bench mark specific energy consumption with National & International standards, and setting up systems to achieve them. Increase use of non-conventional sources of energy & alternate fuel sources. Comply with the Energy Legislation and other regulations. Conduct regular Energy Audits to reduce energy wastage in all areas. Promote awareness among all employees through leaflets, seminars, competitions and company visits. Recognise energy conservation initiatives taken by employees and award them. Reduce waste generation and promote disposal, reuse and recycling in an Environment friendly manner. Make an effort to reduce the cost continuously every year by adopting effective Energy Management System.

Energy Conservation Achievements

During the period between 2003-2005 Mahindra & Mahindra Ltd. has implemented around 320 proposals through Engineering initiatives, workmens suggestion schemes, Auditors recommendations and TPM methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs. This has resulted in a reduction of 15% in specific electrical energy consumption and 14% in specific thermal energy consumption.


Chaptera 6.7.2
Before Installation :

Electrical Saving ( Compressed Air)

1. Screw Compressor with Variable Frequency Drive

For 2200 cfm output compressed air requirement, plant was running four compressors having total motor capacity of 630 hp. Motor Capacity = 630 hp Power Consumption per Annum = 25.32 Lakhs kWh Operating Cost = Rs. 107.63 Lakhs / Annum After Installation:Screw compressor with VFD running in combination with existing compressors having total motor capacity of 516 hp . Motor Capacity = 516 HP Power consumption per annum = 20.79 Lakhs kWh Operating Cost = Rs 88.35 Lakhs / Annum Saving = Rs. 19.20 Lakhs / Annum


b) Electrical Savings Measures : 1. Integrated ( IT ) gun in place of Conventional gun for Spot Welding.

Before - Use of conventional spot welding m/c gun Power Rating :- 150 KVA Electrical Consumption :- 0.72 Lakhs / annum After- Use of Integrated gun ( IT Gun) Power Rating :- 33 KVA Electrical Consumption :- 0.16 Lakhs / annum Installed 6 nos of IT Guns. Total Saving :- 3.37 Lakhs KWH / annum Rs. 14.32 Lakhs / annum

2. Installed Steffa Control valve for Optimum utilization of Chilled water in Central AC Plant

Installed Steffa Control Valve for optimum utilization of chilled water at Central Air Conditioning Plant. Saving :- 3579 KWH / annum Rs. 0.15 Lakhs / annum


3. Conversion of Core baking over from Electrical to PNG in Foundry

Foundry Core Baking Oven which was running on Electrical firing

converted to PNG firing by installing fuel efficient burners. Before :- Electrical Heating Electrical Consumption 3.45 Lakhs KWH / annum Cost :- Rs. 14.69 Lakhs / annum After :- PNG Heating Thermal Consumption 1.06 Lakhs SCM / annum Cost :- Rs. 9.09 Lakhs / annum Saving :- Rs. 5.60 Lakhs / annum

Chapter 6.7.3

Thermal saving & Heat Recovery

1. Conversion of Thermopac from LDO to PNG with Heat Recovery

Before :- Thermopac used for heating of Thermic Fluid

Previously was running on LDO.


LDO Consumption 415 Lts / day Cost of LDO Rs. 25.17 Lakhs / annum After :- Thermopac used for heating of Thermic fluid Converted to PNG firing with Heat Recovery System. PNG Consumption 798 SCM / day Cost of PNG Rs. 20.50 Lakhs / annum Saving :- Rs. 4.67 Lakhs / annum

2. Heat pump using atmospheric heat for washing machines

Before - Use of 66 kw electrical heaters for water heating in washing

machine. After Heat Pump using atmospheric heat to rise the temperature of water from 32 to 60 for washing machine avoiding electrical heaters. Saving = 1.77 Lakhs KWH / annum = Rs. 7.51 Lakhs / annum

Chapter 6.7.4 Other projects implemented during 2004-2005

Variable frequency drive for Body top coat Exhaust blower in paint shop. Automatic power factor controllers. Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls. Online Diesel dispenser system Stopping idle running of motors. Higher HP Motor to Lower HP Motor.


Automatic Star Delta Converter. Flat belts instead of V belts for blowers. Boosters for High Pressure Compressed Air in machine shop. Use direct heating avoiding indirect heating. Effective Insulation for Paint Shop Ovens. Air pressure regulators. Recycling & Reuse of Waste Material. Turbine Air Ventilation System. Building Management system for effective air conditioning .

Chapter 6.7.5

Energy Conservation Plans and Targets

Energy Conservation Measures Anticipated (planned)

Centralization of compressor house at utility compressor house Fuel Cells for Power & Heat generation Install waste heat recovery for CGC 2 furnace and preheat quench oil Replacing open type Burners by close type burners at SAC Furnace Heat pump for washing machine Vapour Absorption System for air conditioning in Transmission PU. Variable Frequency Drives for Gray Primer Booth Exhaust Blowers in Paint Shop. Solar Water heating system for washing machine

Anticipated savings In Energy (Rs. lakhs)

25 104 7.72 2.85 8 4.2 10 10

Approx. Project Project Investmen commencement t (Rs. & completion Lakh) year
75 650 10 4.5 15 21 6.28 17.5

2004 2004 2004 2004 2004 2005 2005 2005


Chapter 7

SWOT Analysis of Cost Reduction Techniques in Automobile


Chapter 7

SWOT Analysis of Cost Reduction Techniques in Automobile

Overview on the automotive sector

The automotive industry is torn between trying to reduce costs on the one hand and, on the other, dealing with the high price of performance-enhancing technology and environmental compliance. Key drivers in the automotive industry are: Reduced air pollution Reduction of weight Recyclability Safety Better performance and engine efficiency (fuel saving) Aesthetics Longer service life


SWOT analysis on the automotive sector

II.1. Frames and body
(1) Nanomaterials presently industrially used Concerning the materials used for frames and body, polymer nanocomposites play an essential role. .

Engines and powertrain

The new development in engine and powertrain technologies has the objectives to improve thermal and mechanical efficiency, performance, drivability and reliability as well as to reduce emissions and costs. 62

Paints and coatings

(1) Nanomaterials presently industrially used o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk materials. Such effects include ultraviolet (UV) blocking, anti-static, and conductive capabilities. Paints and coatings industries were among the first to take advantage of these capabilities three years ago. Companies also found that with the incorporation of nanoparticles, thin film coatings have stronger bonds and better flexibility, with little cost differences. These coatings are smoother, stronger, and more durable. When used on products, the results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing. Many companies from around the world are using the properties of nanoparticles and are incorporating them within their coatings.

(1) Nanomaterials presently industrially used o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear, save maintenance costs and greatly improve overall machine performance. In addition, it reduces energy consumption and decreases air pollution

Suspension and breaking systems

(1) Nanomaterials presently industrially used o Suspension systems. Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solid.his allows a vehicle to instantly alter its suspension system based on the conditions it senses.

(1) Nanomaterials presently industrially used o Replacement of carbon black in tyres with nanoparticles of inorganic clays and polymers, leading to tyres that are environmentally friendly and wearresistant o New nano coating reduce weight, improve pressure retention and reduce recycling and incineration costs. o Nanostructured soot as an additive to increase tire life, reduce friction and fuel consumption. o In the past few years European elastomer and inorganic oxide producers have teamed to produce, using an empirical approach, the green tire which is based on nano-structured silica reinforced hydrocarbon elastomers.


Chapter 8



Chapter 8


The automobile components industry is composed of Tier 1 manufacturers positioned directly below the automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers, forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top. It is common for Japanese automobile component manufacturers to be so-called keiretsu producers, which have strong business ties with a specific automobile manufacturer. The business performance of the automobile component manufacturers is strong, but R&I cannot be optimistic about the future business environment. Amidst increasingly intense global competition between automobile manufacturers, the performance of the automobile manufacturers, which are the main customers, has a significant influence on the performance of components manufacturers. In addition, with earnings for automobile manufacturers themselves being squeezed by the intensification of competition, the demands made on component manufacturers in terms of price have become even more stringent. Moreover, adding in the current rise in the price of raw materials such as steel, aluminum, and copper and it seems that earnings are being squeezed from both upstream and downstream directions. In this tough business environment, R&I considers that the presence of a financial base that can accommodate strategic investment will have a major impact on future creditworthiness for components companies. Rating Points for the Automobile Components Industry Evaluation of Business Base In evaluating the business base for the automobile components industry, R&I focuses on three areas which are the relationship with the automobile companies that are the major customers, the structure for global supply of products, and the importance of the products. Sales for components manufacturers are significantly affected by how many models they can obtain orders for at the launch of new vehicles or model changes and how sales go for each of the models for which they receive orders. Global production and sales of new cars is rising overall, but there are major disparities between individual manufacturers. Therefore, it is necessary to analyze structure of sales and trends for each automobile manufacturer and assess the possibility of changes in future sales while considering external factors such as the track record and future projections of each automobile manufacturer in the launch of new models and the effect of environmental restrictions. Automobile manufacturers have so-called close component manufacturers typified by Toyota-affiliated Denso and Aisin Seiki. Being a close manufacturers does not necessarily guarantee orders. 65

Nevertheless, the close manufacturers ultimately have a high share of deliveries, business volume is often stable, and future order risk is limited to some extent. However, there are also fields in which independent manufacturers have an overwhelming share depending on the product, and it can be considered that order risk is also small for independent manufacturers in these cases. With the move of automobile manufacturers toward a global base structure, component manufacturers have also been aggressively promoting the establishment and expansion of production centers overseas. Catering to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and expand orders in the future, and it is important to assess the state of the global structure for the supply of products of the components manufacturers. The importance of the products that a company handles is also an key point. As the stringency of demands from automobile producers ruses, major disparities in profitability for each component have started to appear depending on factors such as the added value of a product or differences in efforts to improve costs in production. It is important to forecast future profitability taking into consideration the nature of the product, its importance in an automobile overall as a part, and future technological directions.

Chapter 8.1

Main Indicators

Net debt/operating cash flow ratio, Net debt Operating cash flow, capital expenditure Equity capital, equity capital ratio Operating profit on sales, R&D expenditure on sales ratio Sales and operating income (loss) by region, proportion of overseas sales Share of main products (global, for customer) Production and sales of major customers

Chapter 8.2

Focus on Moves to Strengthen Ties with Automobile Manufacturers

In order to survive global competition, some Japanese automobile manufacturers are trying to boost product strength by forging extremely close ties with highly competitive component manufacturers. The role played by component manufacturers in the development of new models, primarily in such fields as the 66

environment, safety, and comfort, is becoming increasingly important, and there are instances of automobile manufacturers moving to boost ties, including on the capital front, with competitive component manufacturers. R&I is following the impact that this trend is having on the competitive environment between automobile component manufacturers.

Chapter 8.3

Investment Margin is Key to Survival

Ability to generate cash flow is the most important factor. In response to production increases by automobile manufacturers, each of the component producers have also stepped up capital expenditure, primarily to boost capacity both in Japan and overseas. However, the sharp increase in capital expenditure has been a heavy burden on finances in the automobile components industry, which has many companies that are small in scale compared to automobile producers and that compare unfavorably in terms of financial base. In order to implement strategic investment including rationalization, maintenance and innovation, and initial investment in addition to establishing centers in growth markets, it is necessary to secure stable cash flow in excess of a certain amount every fiscal year, and this could be termed a condition for survival.

Chapter 8.4

Focus on Adequacy of Equity Capital

Sales credit and inventory risk is relatively small for component manufacturers. With the exception of some open market sales, the majority of sales credit is for automobile manufacturers, and the risk of bad debts is low when limited to Japanese automobile producers. Moreover, compared to other industries, sales credit collection period is often short and its terms are also favorable. Inventory is ordered production for automobile manufacturers, so R&I considers the risk of abolition and impairment to be extremely small. R&I also considers that equity capital as a risk buffer is an important factor. R&I assesses effective equity capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and extraordinary losses. Nevertheless, the level of risk buffer required varies depending on the business risk of individual companies. If the customer is a manufacturer that is continuing to increase production, the risk that the component manufacturer will abolish facilities is extremely small. However, when the customer is a manufacturer that is carrying out large-scale restructuring, it is necessary to consider the effect of the restructuring plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production


facilities and the adequacy of equity capital.


Chapter 9.



Chew, W. B., T. F. Bresnahan and K.B. Clark, 1990, Measurement, Coordination and Learning in a Multiplant Network, in R. S. Kaplan, ed., Measures for Manufacturing Excellence, Harvard Business School Press, Boston.

Chew, W. B., D. Leonard-Barton and R. E. Bohn, 1991, Beating Murphys Law, Sloan Management Review, Spring, pp. 5-16. Cusumano, M. A., 1985, The Japanese Automobile Industry: Technology & Management at Nissan and Toyota, Harvard University Press, Cambridge. Daiwa Securities Research Institute, annual issues, Analysts Guide. Tokyo, Japan. Fujimoto, T., and A. Takeishi, 1994, An International Comparison of Productivity and Product Development Performance in the Automotive Industry, in R. Minami etal., Acquisition, Adaptation and Development of Technologies, Macmillan.

Geweke, J., R. Meese and W. Dent, 1983, Comparing Alternative Tests of Causality in Temporal Systems, Journal of Econometrics, (21), pp. 161-194. Granger, C. W. J., 1969, Investigating Causal Relations by Econometric Methods and Cross-Spectral Methods, Econometrica, 34(4), July, pp. 424-438. Hall, R. W., 1983, Zero Inventories. Homewood, IL: Dow Jones-Irwin. Im, J. H., and S. M. Lee, 1989, Implementation of Just-in-Time Systems in U.S. Manufacturing Firms, International Journal of Operations and Production Management, 9(1), pp. 5-14. Jorgenson, D. W. and M. Kuroda, 1992, Productivity and International Competitiveness in Japan and the United States, 1960-1985, Economic Studies Quarterly, 43, December, pp. 313-325. Lieberman, M. B., 1990, Inventory Reduction and Productivity Growth: A Study of Japanese Automobile Producers. In Manufacturing Strategy, J. E. Ettlie, M. C. Burstein and A. Feigenbaum, eds., Kluwer Academic Publishers, Boston.

Lieberman, M. B., Demeester, L, and R. Rivas, 1995, Inventory Reduction in the Japanese Automotive Sector, 1965-1991, mimeo. Monden, Y., 1981, What Makes the Toyota Production System Really Tick?, Industrial Engineering, (January), pp. 36-46.


Chapter 10. References


Chapter 10


The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821 Research for a new age of magnesium in the automotive industry ,By H. Friedrich Schumann Journal of Materials Processing Technology Volume 117, Issue 3 , 23 November 2001, Pages 276-281 Comparison of Construction Alternatives Using Matched Simulation Experiments J. Constr. Engrg. and Mgmt., Volume 122, Issue 3, pp. 231-241 (September/October 1996) and S.


Chapter 11.



Chapter 11.


Annexure A Segment
Bajaj Tempo, Eicher Motors

Key Players

Commercial Vehicles Tata Motors, Ashok Leyland, Swaraj Mazda, Mahindra & Mahindra, Passenger Vehicles Tata Motors, Maruti Udyog, Honda Motors,Hyundai Motors, Toyota, Skoda, Mahindra &
Mahindra, Daimler Chrysler, Hindustan Motors

Two Wheelers Hero Honda, Honda Motors, Bajaj Auto, TVS Motors,
Yamaha, Kinetic Engineering

Three Wheelers Bajaj Auto, Piaggio India

Annexure B

Competitive Advantages

India has several competitive advantages in the automobile sector,which have been analysed using the following framework.Availability of skilled manpower with engineering and design capabilities India has a growing workforce that is English-speaking, highly skilled and trained in designing and machining skills required by the automotive and engineering industries. In a combined assessment of manpower availability and capabilities, India ranks much ahead of other competing economies Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design and R&D to their Indian arms. The Society of Indian Automobile manufacturers (SIAM) estimates that automotive vehicle manufacturers are expected to invest US$ 5.7 billion in the Indian market from 2005 to 2010. Of this, about US$ 2.3 billion will be on research and development and the rest probably on capex. Some examples of investment in areas leveraging the engineering and design capabilities of India include: MICO, the Indian operation of Bosch and a key player in fuel injection equipment, ignition systems and electricals, has invested in the MICO Application Centre (MAC) for R&D. It has emerged as a key global R&D


competency centrecatering to the entire Bosch Group. It is the first of its kind in India and the Bosch Groups first outside Europe. GM set up a technical centre at Bangalore that became fully operational in September 2003. The centre focuses on both R&D and engineering, and takes up high-value work to complement current research programmes, as well as new exploratory research projects.