ACMA meet calls for collaborative R&D

Delegates at ACMA’s 52nd convention said collaborative R&D can take Indian industry to the next level and Indian vendors must also increase exports.

Autocar Pro News DeskBy Autocar Pro News Desk calendar 17 Sep 2012 Views icon3757 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
ACMA meet calls for collaborative R&D
The central theme of the well-attended 52nd ACMA annual convention held in New Delhi on September 5 was the need for OEMs and component makers to arrive at a collaborative R&D model that can take the Indian automotive component industry to the next level. The conference was addressed by several speakers ranging from the managing director of Hero MotoCorp, PawanMunjal to the secretary in the ministry of heavy industries, S Sundereshan.

Dwelling on this theme, ACMA president ArvindKapur, who delivered the opening address, said it is imperative to make the relationship between vendors and OEMs more mutually beneficial rather than transactional in nature as is the case at present.

He said that ACMA delegations had visited three countries including Japan, Indonesia and Russia and that Russia offers a new opportunity for Indian suppliers. He also highlighted several other issues including the need to invest in human resource training. Without referring to Maruti by name, he said the auto sector has to be sensitive to the aspirations of its employees.

Referring to the macro-issues that have become areas of concern, Kapur said that Indian vendors import more than export and that India must leverage exports as a long-term strategy. On other issues, he said that while Japan has its proven expertise in design and South Korea in speedy execution and cost, India needs to look at areas such as design and development and testing. The auto sector, he added, could take a leaf out of the books of the IT and pharmaceutical sectors that have done India proud despite the many hurdles that exist.

In his remarks, president, Confederation of Indian Industry, Adi Godrej spoke about the current state of India’s manufacturing sector in general, describing it as disappointing and urging the government to take steps including tax measures to boost growth. He made five key recommendations that included:

• Innovation in R&D

• Improving quality – labour arbitrage will not last forever

• Sustainability and the need to lower the industry’s carbon footprint.

• SMEs: this sector needs special attention.

• And finally, integrating with the global industry through exports.

Hero MotoCorp’s managing director Pawan K Munjal said that in a challenging economic climate, the future would belong to those companies that embrace uncertainty and are able to undertake mid-course correction. He highlighted other challenges of the industry which included talent retention, need for prudent financial management and for the need to closely monitor product trends. “Customer behavior is moving from price to value,” Munjal said. He identified areas such as comfort and entertainment in vehicles which could well be key differentiators in the buyer space. Munjal also dwelt on the impact of the regulatory environment saying that fuel savings and sustainability would be key templates.

Union Industries minister Praful Patel chose the ACMA forum to provide some defence for the government of the day. “We have no policy paralysis,” he said, adding that the need was for policy reinvention.”

McKinsey insights

The ACMA session included presentations by McKinsey and Ernst & Young. While McKinsey said that OEs should leverage M&A to leapfrog competition and gain new buyers and build new capabilities, the E&Y study said India auto should invest in R&D to shape India’s future as an integrated design and manufacturing hub.

The McKinsey report stated that while the Indian auto sector had done well, its value creation process is set to become challenging as the global profit pool for OEMs shrinks. As per McKinsey figures, the global profit pool has fallen from $57 billion in 2006 to $49 billion in 2010 and is likely to fall further to $36 billion in 2020. The only way this can be contained, it suggested, is if additional regulatory costs are passed on to customers or governments as subsidies, and if development and other costs are shared with OEMs.

One significant McKinsey ‘advice’ is the opportunity for Indian companies in the M&A space. India is still a net importer of auto parts with imports having increased their share compared to the domestic sector from 16 percent to 23 percent. The presentation also emphasised the opportunities for Indian suppliers in areas such as the railways, defence and construction equipment. Citing ACMA and Planning Commission studies, McKinsey indicated that planned spend on construction segment is expected to rise 1.2 times while that on railways by six times.

Perhaps, the most important part of the McKinsey presentation was how India stacked up as compared to other countries in terms of what resources companies devote to R&D. While Germany tops at 6.5 percent, China and South Korea are ahead of India at 1.8 and 1.1 percent respectively. India is just 0.4 percent, thus indicating the potential that can be used. South Korea was cited as an example for India given that while Korea has four players in the top global 50, India has none so far. Tellingly, Korean exports as part of global share have gone up to 6.8 percent in 2011 while India’s share in just 0.7. To buttress its point on the opportunities that exist in M&A, the McKinsey study highlighted the need for executional excellence in order to create value. It also recommended that Indian industry hire foreign engineering talent in the areas it needs and that this is a window of opportunity that will close in a couple of years.

Aftermarket matters

The importance of the aftermarket in the mature auto sectors was also highlighted. It is in this sector that the profits are being generated and therefore, OEs must target this sector.

The final suggestion concerned collaboration with government to boost a country’s competitive profile and the areas that came up included testing facilities, manpower development, expansion of roads and better logistics facilities, particularly access to the ports.

A panel discussion that took place after the presentation asked if India can create a set-up that can model itself on the Schwabian area in Germany. Dr V Sumantran of Ashok Leyland-Nissan highlighted the need for long-term dependable partnerships if such as set-up were to fructify in India.

Dr Bernd Bohr, Bosch’s auto sector head, spoke about how cost innovation is imperative and sounded the one note of dissent with the McKinsey paper that the share of product innovation as part of vehicle cost would come down in the long term. Bohr also said that India needs to determine what its own market pull factors are. India’s large two-wheeler segment, he said, could well be a source for innovations in injection systems and anti-lock braking systems or ABS.

In another panel discussion on opportunities to develop India as an product development hub, Deep Kapuria of Hi-Tech Gears said suppliers should ask if they can create within themselves an eco-system that fosters a greater absorption of technology. Indian industry, he said, must convert more R&D projects into products. And he also cited the example of Israel which makes it necessary for academics to get exposure in working situations after doing research for three years.

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