Slice of Japan in Rajasthan
The Neemrana Japanese Zone, which houses a cluster of Japanese auto component manufacturers, is driving new growth opportunities in Rajasthan. Shobha Mathur takes a look at this unique initiative, facilitated by the state and the Japan External Trade Organisation (JETRO), one which is all set to be replicated soon in Gujarat.
The Neemrana Japanese Zone has in fact become a great success story with echoes of the investor destination story resounding in Japan and drawing fresh investors, eyeing new business opportunities in India. Likewise, other Indian states, primarily Gujarat, are looking to replicate the Japanese investor zone concept. Gujarat that already reached out to the Japanese government to establish a similar cluster, near Ahmedabad, in a region spread from Becharji to Sanand where major vehicle OEMs like Maruti Suzuki and Ford India have announced new plants and where Tata Motors’ Nano plant was the trigger for development.
The seriousness with which Gujarat is approaching this is evident considering that chief minister Narendra Modi, on his visit to Japan last July, reportedly made an offer to government officials to set up a dedicated industrial estate for Japanese investors in Gujarat at a price lower than Neemrana.
Hence, low-priced land was one of the chief incentives that took JETRO to Rajasthan. Till two years ago, the Neemrana land was allotted to Japanese companies at Rs 2,000 per square metre, albeit recently the price has been hiked to Rs 3,000 per square metre. So, JETRO is optimistic of striking a lucrative bargain with Gujarat. But with the state currently under assembly elections, no new initiatives can be taken up at present.
Rajasthan’s winning card though is the Central Sales Tax (CST) benefit provided to the Japanese Zone – products sold outside the state attract a reduced CST of 0.25 percent instead of the normal 2 percent.
JETRO the facilitator
What’s amply clear in this project is the role played by JETRO, which operates overall under the Japanese Ministry of Economy, Trade & Industry to foster growth of Japanese companies outside Japan. It guides the companies and helps identify suitable land for setting up base in India. Rajasthan too has done its bit by developing the infrastructure for the Japanese investors coming to the state. This is a different approach considering that globally, Japanese investor zones have been created privately by giants like Mitsubishi or Sumitomo who first created the infrastructure and then invited Japanese companies to locate in a new region.
As on October 7, 2012 and counting, 926 Japanese companies were present in India with automotives constituting 30 percent. Heading the list is the country’s largest carmaker Maruti Suzuki which became a force to reckon with in the 1980s after Maruti Udyog partnered with Suzuki Motor Corporation of Japan. Subsequently, Japanese majors like Honda, Nissan, and Toyota also drove into the country along with vehicle manufacturers from other geographies like Hyundai, Ford, General Motors and Mercedes-Benz, to name a few.
Though Maruti Suzuki’s market share has fallen in recent times to around 37 percent due to production losses as a result of labour issues and increased market competition, it still maintains its clout as the market leader in the passenger car segment and, along with other Japanese car manufacturers, has drawn a bevy of Japanese component suppliers to India post 2003. From the Japanese supplier point of view, India remains a favoured destination what with the large business opportunities it presents. So, it was not surprising that when the Neemrana Japanese Zone project came up, investors were not found wanting.
While citing the development of the Japanese investor zone at Neemrana as a very rare activity, Naoyoshi Noguchi, senior director general of JETRO, says that it is due to India being a very important market for Japan compared to China. The Chinese market, though huge, poses difficulties for Japanese companies in terms of penetration of the domestic market. This September, anti-Japanese demonstrations ensued in China due to friction over Japanese control over some disputed islands and Japan has identified a risk quotient for itself in China.
Given this situation, India as an emerging economy among the BRIC countries, assumes immense importance for Japan. Hence, the Japanese government is actively aiding local industry to tap the growth potential, that it visualises in India especially in the auto sector.
Before 1991, the bilateral exchange between Japan and India was limited since India had a predominant socialist fabric with a controlled economic facade which deterred prospective Japanese investors. Post liberalisation in the 1990s, the Indian economy opened up, enabling foreign manufacturers to invest in India. At that time, the few Japanese companies that were in India existed independently. To provide a helping hand and to iron out teething problems of setting up business in a new country, JETRO came onto the centre-stage guiding Japanese investors and highlighting the advantages of subsisting in a group.
Neemrana project draws rival states
Today, the Japanese investment zone at Neemrana has become an example of a famous investment destination story. In India, state governments have begun vying with each other to attract Japanese investments and like Gujarat, Chhatisgarh too has been eyeing Japanese companies to set up a Japanese cluster. The deterrent though, according to Noguchi, is the absence of an existing Japanese OEM in Chhatisgarh due to which no component manufacturer will be ready to locate there. In comparison, Neemrana’s advantages are its proximity to the industrial belt in Gurgaon-Manesar, which is home to large OEMs like HeroMoto Corp, Honda Motorcycle & Scooter India, Honda Cars India, and India Yamaha Motor among others. Similarly, Madhya Pradesh has also evinced its keenness to draw Japanese automotive investments but the absence of any Japanese OEM in that region is a constraint.
Gujarat, of course, is taking its Japanese cluster project very seriously. It is hosting ‘Vibrant Gujarat 2013’ between January 11-13, after which the plotting work for the cluster will kick off. Japanese companies are expected to buy land and plan manufacturing units thereafter. JETRO is sending a business delegation comprising 100 representatives from Japanese companies to attend the Vibrant Gujarat event and these include many new companies from Japan keen to enter India.
The Automotive Component Manufacturers Association of India (ACMA) is also helping parts makers to establish base in Gujarat in the Sanand, Becharji and Halol belt where about 950 acres have been sought. However, ACMA’s executive director Vinnie Mehta says that no special benefits have been offered to them by the state government and even the land prices are at the prevailing market rates. Instead, the state government has agreed to co-invest in the new setups including testing centres, skill development centres, toolrooms or vocational training centres. Sources say the Gujarat government has committed between Rs 50-70 crore in Maruti’s skill development centre in the state.
Meanwhile, compared to Neemrana, investors will have it easier in Gujarat on the infrastructure front. Japanese investors feel availability of electricity, water and gas is better organised in Gujarat as Tata Motors and other industries are already located there. At Neemrana, basic infrastructure was not in place when they were allotted the land and hence the zone took time to establish.
Giving a fillip to the diversification programme of the auto industry to other states from the Delhi-NCR belt is the non-availability of land in this region, especially in Gurgaon and Manesar where local industries have expanded their businesses phenomenally. This has dented the demand-supply equation of land sending realty prices skyrocketing. Further, Bawal and Bhiwadi towns in Haryana are still in their development stage necessitating a crossover from the Haryana border for Japanese investors.
“We entered Rajasthan and accidentally found a large tract of land at Neemrana. So we met the Rajasthan state government and explained our requirement for a dedicated industrial land for Japanese companies. We told them that JETRO will tie up with the state government and promote investment in Rajasthan. Finally, they agreed to give us over 1,000 acres of land in 2006,” reveals Noguchi.
However, the Japanese find industrial estates in Thailand and in Japan to be far more advanced, with better road infrastructure and better power and gas supplies. This took time at Neemrana, as a result of which some Japanese companies are still in the process of settling there. Currently, about 80 percent of the land in the Japanese Zone has been allotted with talks underway with more Japanese players for the marginal and fringe lands, according to a RIICO official.
At present, 41 companies from different sectors have taken up land in the cluster with investment of around Rs 39 billion made till October 2012. Thus far, about 18 companies have started operations, creating jobs for 8,500 people of which 200 are Japanese and the balance Indians. Another over 20 companies – half of them auto-related – will start operations soon and are expected to generate employment for another 8,500 people. The region offers a lucrative investment climate to them with easy accessibility to Mumbai and Delhi being located on the Delhi-Mumbai Industrial Corridor and facing the National Highway-8.
The companies housed in the Neemrana cluster are appreciative of the assistance extended by the Rajasthan State Industrial Development & Industrial Corporation Ltd (RIICO) that they say has been a one-stop service centre.
RIICO is believed to be also developing another industrial estate across the Neemrana cluster at Giloth where about 1,800 acres have been acquired partly from farmers and part-government land. A RIICO official confirmed that Korean companies have also indicated their interest in setting up their zone in the region.
Located along NH 8 towards Delhi and 20km from Neemrana, the Giloth area is under environment assessment and JETRO is eyeing about 500 acres in that region where 20 Japanese companies can be located, depending on the size of the other industries.
Normally a Japanese company targets about 20 acres of land for setting up its manufacturing base. At present, most of them are in the process of expanding operations either at Neemrana or in other parts of the country. The favoured destinations remain the automotive hub of Tamil Nadu or the upcoming one at Gujarat. While their main customers will continue to be the Japanese OEMs, manufacturers from different countries will also be brought under their ambit for future supplies.
Among the new investments planned in the South are in the Chennai-Bangalore Industrial Corridor with Bangalore-based Toyota Kirloskar Motors believed to be establishing its third plant at Hosur in Tamil Nadu. A number of automotive plants like that of TVS Motor are already nestled here. Karnataka is another prospective area for investments with HMSI setting up its new plant at Narsapuram, triggering off another cluster in the region with India Yamaha Motor settling for Vallam Vadagal on the outskirts of Chennai for establishing its third factory. JETRO has helped these Japanese vehicle manufacturers to identify land in the Chennai-Bangalore Industrial Corridor where another Japanese cluster is set to develop. The region is already an automotive hub, being home to carmakers like Hyundai, Ford and Renault Nissan besides CV makers like Ashok Leyland and Daimler India Commercial Vehicles. The Chennai-Bangalore Industrial Corridor is also under the scanner of the Union ministry of commerce and industry, not only in terms of developing infrastructure but also for the anticipated flow of investments.
Japanese drive growth from Neemrana
Though no breakthrough technology for the auto sector has so far emerged from the Neemrana Japanese cluster, which Noguchi admits are not required for a low-cost car, he clarifies that working on reducing costs while maintaining product quality is a challenge faced by Japanese firms. These companies have developed engine technologies to save energy, fuel and for a pollution-free environment in line with evolving emission norms. Though R&D is undertaken in Japan with customisation work taken up in India, future research is expected to revolve around these aspects.
For instance, the first company to set up base at Neemrana six years ago, Nissin Brakes India is in the process of expanding production capacity at its existing plant and is also mulling a new facility in Gujarat. Currently 80 percent of its supplies are to Honda Cars India and HMSI and the balance for India Yamaha Motor and HeroMoto Corp.
Takata India, a joint venture with the Anand Group of Delhi, which manufactures seatbelts, airbags and steering wheels, is planning new safety products including the air-belt (a seatbelt with an airbag) and talking to OEMs for its child seat that can be attached to the car seat. The child seat is available in the child care shops and is expected to come into production in another couple of years in premium cars.
Toyoda Gosei Minda India , established three years ago, is engaged in the manufacture of rubber extruded profiles called rubber sealings which are placed along the door, wind shield, steering wheels and airbag assemblies. It recently added a new product line – fuel caps for fuel tanks in which future expansion will follow.
According to vice-president Lalit Sardana, Toyoda Gosei Minda, a joint venture between Toyoda Gosei, Uno Minda Group of Delhi and Toyota Tsusho is focusing on light-weighting its products and will be a supplier to the new Honda Amaze as well. The company is setting up a new factory at Neemrana and will also look at further expansion next in Gujarat, if invited by Maruti. Mikuni India that manufactures carburettors for two-wheelers, and intake manifolds and throttle bodies for four-wheelers is working on localising imported products at its R&D centre in Neemrana. The company says the new breed of carburettors will meet the BS-III and IV emission norms and also lead to improved engine management.
Interestingly, all the Japanese companies maintain a camaraderie and interactions and communication are a regular affair. Monthly human resource meetings are also common during which vexatious issues are discussed. Supervisors are sent to Japan for technical training in many companies on production-related activities and these directly interact with workers.
Kaizen comes in
Japanese culture, according to Indians working in the cluster, is very specific and very disciplined, necessitating consistent performance as per the methods mandated. Japanese officials are smart and highly skilled and expect strict compliance with rules. Products are in line with quality and standards laid down but at times local workers find it a tad difficult to adhere to rules and responsibility as per the organisation chart.
Kaizen, which means continuous improvement in Japanese, is a way of life for companies here. They form various cross-functional teams comprising operators, supervisors, engineers and managers who work in improvement areas through kaizen projects or QC circles. The focus is on defect and wastage elimination, improvement in productivity and generally on cost savings.
As many Japanese expatriates reside in the zone, Japanese cuisine in Bento boxes (Rs 600-Rs 1000 per box) is favoured consisting of rice, noodles, boiled or steamed meat, fish and vegetables. These are sourced from two restaurants, Aju in Neemrana, and Daikichi in nearby Shahjahanpur. On weekends, Japanese tend to visit Gurgaon or Delhi for more variety. Overall, the Japanese zone at Neemrana still has to undertake some learning’s in terms of sharing of resources. But as other Japanese clusters start taking shape, the Japanese share in the automotive market is all set to rise dramatically.
INTERVIEW WITH ICHIHEI KOJIMA, PRESIDENT, NISSIN BRAKES INDIA
What is Nissin Brakes India's growth strategy for India?
We have been at Neemrana for the past six years and have one plant here. We supply the ABS braking system and disc brakes for two-wheeler manufacturers like Honda and Yamaha.
We also supply to the four-–wheeler segment like Honda Cars India for the Honda City, Jazz, and Brio — 80 percent of our total production goes for Honda Motorcycle & Scooter India (HMSI) and Honda Cars India, with the balance for Hero MotoCorp, and Yamaha. For HMSI, our bread-and-butter business is for the CB Shine bike, for which we supply the entire master cylinder, tubing and caliper. We also supply the front disc brakes for the Aviator deluxe scooter. We will add production capacity as new product models come into the market and as we add new clients.
Our present capacity is 10,000 sets per month for four-wheelers and 50,000 sets per month for two-wheelers.
We plan to expand in this area initially though another team is looking at the prospect of setting up a plant in Gujarat. Since HMSI is setting up a plant in Karnataka and Yamaha is going to Chennai, we will also explore a plant in the South, if our customers give us volumes.
We will finalise the plan next year but will require about 15 acres of land for a new plant, which should ideally require an investment of Rs 100 crore in the long term.
How much has Nissin invested at Neemrana so far?
We have invested around Rs 200 crore over six years at Neemrana, which has 30 acres of land. In future, we will target new customers with equal business from both the four-wheeler and two-wheeler segments. Currently, they contribute the same amount.
Do you undertake R&D activities in India?
Technical support for two-wheelers comes from Thailand; Nissin R&D Asia at Bangkok also provides support.
Any plans for exports?
In future we will export to Indonesia, Japan and other countries to meet the requirements of Honda Cars India and HMSI.
We get many parts from Thailand and four other plants are also currently supporting us in parts, Nissin Brakes Vietnam, PTY Indonesia, Japan and Thailand. We will commence small numbers of exports to these countries next year.
What is your current level of product localisation?
We plan to increase the localisation of products to 80 percent by 2014. Next year, we expect higher volumes for new products that will lead to economies of scale.
INTERVIEW WITH SUNIL ARORA, PRINCIPAL SECRETARY INDUSTRIES, RAJASTHAN & CHAIRMAN, RIICO
How did the Japanese cluster evolve in Neemrana?
The Rajasthan State Industrial Development & Industrial Corporation Ltd (RIICO) and JETRO signed an MoU in July 2006 for two years that was subsequently renewed each year till September 2012. This MOU of 2012 is valid up to August 31, 2013.
The MoU basically aims to attract Japanese investment in the state of Rajasthan. To that end it facilitates the visit of Japanese investors to the state to explore the possibilities of development of industrial areas in Rajasthan suited to the requirements of Japanese entrepreneurs.
The state evolves a one-stop system to provide information for smooth implementation of Japanese investments. It also facilitates necessary clearances from government departments for Japanese investments and provides co-operation to investment missions of RIICO.
After signing of the MoU, a number of Japanese delegations have visited Neemrana and Jaipur and there is growing interest in making Japanese investments in the state.
Prominent units here include Nissin Brakes India, ACI Mitsui Advanced Composites, Daikin, TPR Auto Part Manufacturing, Dianichi Color, Mitsubishi Chemicals, and Nippon Express.
The Japanese cluster is just like other areas of RIICO in terms of cost of land and the allotment process. The only restriction is that companies investing in this zone should have a majority holding (more than 50 percent) of Japanese origin. As most of the manufacturers make automotive components and their components are being supplied outside Rajasthan, the Central Sales Tax (CST) in this zone has been reduced from the current level of 2 percent to 0.25 percent. This is valid up to July 25, 2015.
INTERVIEW WITH TOYOJI IWANE, MANAGING DIRECTOR, TAKATA INDIA
To which new OEMs does Takata India plan to supply?
We already supply to Maruti and Honda Cars India, Renault Nissan and Ashok Leyland. We will start supplies of steering wheels to Daimler India Commercial Vehicles for two of its low- and medium-duty trucks next year. We will also start our new business for the Maruti Alto with discussions underway for other models as well. We are also keen to do business with Mahindra & Mahindra. Our target is to supply to all OEMs in the country.
How do you view the growth potential of safety products in India?
The demand for safety products is not very high at present but regulations are coming for frontal protection for the driver and passenger. Currently, only the seatbelt is mandatory; we expect the airbag to become compulsory in the next three years. At present, safety products are used mainly in the premium car segment and are mostly airbags and seatbelts for European and Japanese customers.
Would Takata look at setting up a plant in Gujarat where a Japanese cluster is in the process of coming up?
If the timing is right, then we will look at it.
New products on the radar…
We are exploring the possibility of introducing air belts, which is a seatbelt with an airbag. It is currently in mass production in USA for the Toyota Lexus for side protection for both the driver and the front passenger. We are showing the product to customers in India and are also looking at protection for pedestrians. Some OEMs have shown interest in it for export purposes. Another product for which we see demand in the next two years is child seats in premium cars.
INTERVIEW WITH HIDETAKA FUKAMACHI, MANAGING DIRECTOR, TOYODA GOSEI MINDA INDIA
Can you reveal your future growth plans? Our focus will be localisation of steering wheels and airbag assemblies. Import of rubber extruded parts has already come down from 90 percent to 50 percent and the remaining are unavoidable parts like EBTM rubber that we import from the US as it is not available in India. In airbag assemblies, the current import level is 90 percent; we will reduce it in a phased manner with plans to add 30 percent localisation next year and another 30 percent in the subsequent year.
What are the new investments in the pipeline?
We have already invested Rs 160 crore here and expect another Rs 160 crore to be invested in a new facility that we are building here. Funding will come as equity from shareholders and borrowings from banks. At present we have a land bank of 21 acres, half of which has been utilised. We are in the process of completing a project feasibility and getting necessary approvals. We will start construction early next fiscal and will go on stream within a year.
We are currently importing parts from our sister concern in Thailand and other parts of the world; these imported parts will now be manufactured in India. Our current production capacity is 600,000 car sets per annum with supplies to Maruti Suzuki and Honda Cars India. We will start supplies to new Toyota models early next year.
Maruti’s requirements are also increasing and with new regulations airbag penetration will also increase. At present, airbags are present only in top-end models but with rising customer awareness and new safety regulations this will change. Our customers have also indicated that there will be more airbag requirements and since we have to be competitive we cannot always import them.
What is your targeted turnover this fiscal?
The plant has been designed to generate a sales turnover of Rs 500 crore by the fiscal year ending FY’16. We are in a ramp-up phase since the last fiscal had more trading activities. We expect to close the current fiscal at Rs 160 crore, up from Rs 60 crore in FY’12 due to new launches which have increased demand. About 80 percent of our sales turnover comes from Maruti and the balance from Honda.
Toyoda Gosei Minda India faced labour issues earlier this year. What is the status of HR now?
That was in the earlier part of the year. It began in May and went on till August but now things are peaceful and production is at normal levels. We have a workforce of 500 with 100 staffers of which there are six Japanese expats.
The labour problem was triggered by outside political parties who wanted to influence this industrial area. One of the industries already has a union; they tried to form a union here but after discussions the union was discontinued.
INTERVIEW WITH MOTOKI IDA, MANAGER (SALES COORDINATION), MIKUNI INDIA
How do you see the growth of Mikuni India going forward?
Our annual turnover is Rs 125 crore and we expect to grow at a CAGR of 30 percent starting next year. We are expanding our products and adding some new ones like a new carburettor for the two-wheeler industry and for new customers.
We expect to increase our production capacity at Neemrana 4-5 times, from two million pieces per annum to 10 million in five years. Our key customers are Maruti Suzuki India, India Yamaha Motor, Honda Motorcycle & Scooter India and Suzuki Motorcycle India. Our focus in the next five years will be two-wheelers though we supply to four-wheeler companies globally. At present, we make carburettors, intake manifolds and throttle bodies. Our new carburettors will meet changing emission norms- both BS-III and IV emission norms and lead to improved engine management. We will start production early next year for Suzuki and Yamaha.
In India, emission norms have been delayed, so we get the technology from Japan but localise it in India to make it affordable. We break the product into child parts, develop and test them in local conditions before their use by OEMs. Testing of child parts is undertaken at Neemrana.
We are also developing fuel injection systems for two-wheelers. While this system is not currently popular in India, it will become bigger than the current 2-3 percent market share it has over the next 2-3 years. We are working with several customers on customisation of this system and for making it available at an Indian cost. It will be ready in 2014-15. We are also modifying the throttle body to change it to electric management to control the valve angle. Currently, the throttle body works on a mechanical mechanism. The latest trend now in high-spec cars is the connection between the throttle body and the accelerator pedal through electronic contact. The Maruti Swift uses it and all cars will start having electric throttle bodies in future.
INTERVIEW WITH NAOYOSHI NOGUCHI, Senior DIRECTOR GENERAL, JAPAN EXTERNAL TRADE ORGANISATION (JETRO)
What is Jetro’s ambit of work and strategy in India?
JETRO is an agency under the Japanese government mandated to promote mutual trade and investment between Japan and the rest of the world. In India, we have four offices at New Delhi, Bangalore, Mumbai and Chennai. After 2003, the BRIC acronym was introduced by Goldman Sachs. Emerging markets like India, China, Brazil and Russia have been growing very fast, so investors are watching them especially India. The Indian economy is growing speedily post the 2000 era as the purchasing power of the middle income group has been increasing rapidly, and with it the automotive market. This has spurred numerous foreign investors to India including vehicle assemblers; the presence of Japanese companies in India has also been multiplying after 2003. It is to provide auto parts to car assemblers like Maruti, Nissan, Honda and Toyota that several Japanese auto parts suppliers have come to India after 2003.
Since many OEMs are setting up new plants in Gujarat, will another Japanese cluster, like the one in Neemrana, be located there?
The Gujarat state government has decided to find place for Japanese companies and emulate the cluster at a location 40km from Ahmedabad, where around 1,500 acres have been given for it. With OEM investments, parts supplier will also have to join. Maruti Suzuki will start production from 2015 in its new plant in Gujarat, so parts suppliers must come earlier than Suzuki. In this regard, many Japanese companies will move faster to Gujarat than they did at Neemrana. Not only will Japanese companies from Neemrana expand in Gujarat but fresh investments from Japan will also come.
The new cluster in Gujarat should contain at least 60 companies and though the investment is decided by individual investors, we expect it to be over Rs 40 billion.
While Gujarat plans to set up an auto industry cluster in the state as well the Japanese cluster alone should house more than 50 percent automotive companies. Maruti Suzuki alone cannot draw so many Japanese companies to the state but if Gujarat creates an auto cluster, vehicle assemblers from other countries will also locate there. Japanese parts suppliers will then not only be business partners for Japanese vehicle assemblers but will also supply to other assemblers like the Tata Nano plant in Sanand, besides Ford India whose facility is under construction.
Will JETRO emulate this model in any other state in India as well besides Gujarat?
We are identifying the demand from Japanese companies as many corporate representatives inform us that they are unable to find appropriate land to set up their manufacturing facilities. For instance, in Uttar Pradesh, land is available but mainly for commercial and residential purposes.
In South India, we are looking at the Chennai-Bangalore Industrial Corridor and at another 500 acres in Giloth in Rajasthan on the opposite side of the Neemrana Japanese Zone, as also in the West in the Pune, Nashik, Aurangabad and Nagpur belt. Many private companies are developing the industrial estate in the South. As Japanese investment has become accumulated in the NCR region, it is important to find another suitable place near the NCR.
How do you gauge the success of the Neemrana zone?
JETRO undertakes research reports every year about operations of Japanese companies outside Japan and many of them have responded to our queries saying that they are generating profits from their operations in India. So that means their business operations are quite good as reflected from their activities. At present, all the companies in the Neemrana Japanese zone cater only to the domestic market.
The second half of 2011 and early 2012 saw many Japanese carmakers’ production fall due to the Thailand floods and natural disasters in Japan, resulting in a disruption of the parts supply chain. Will setting up of such Japanese clusters reduce the imports from Thailand and Japan?
The intention of the car assemblers is to save costs and sell cars at a lower price to be competitive in the Indian market for which they must invite component suppliers here to produce products and supply to the domestic market. Japanese parts suppliers plan to shift to India from the ASEAN or from Japan to enable reasonable prices of products.
So the choice is to invest and set up a production base in India to achieve a lower cost. JETRO expects the Japanese parts suppliers’ investment to rise more and more, depending on the production schedule of OEMs in Gujarat. In the next 2-3 years, 60 percent more investments should flow in from the current level of overall investments in the auto sector.
In terms of exports, Japanese companies located in Tamil Nadu export products to the ASEAN countries under the ‘Look East Policy’ of the central government and we expect more engagements to the East Asian countries in the future that will enable India to join the supply chain network in East Asia.
The network has been created by the ASEAN countries which have an automobile industry in their country, and car parts suppliers in these countries supply to each other. For instance, parts from Thailand are supplied to another country in Asia. Some other Asian country manufactures some other parts and exports these; so maybe India can join in this exchange of parts supplies for the same vehicle manufacturers.
Do Japanese companies pool their resources or quality practices at Neemrana?
No. At present, there is no sharing of resources and all of them follow individual quality practices.
How different are Japanese quality practices like kaizen and is the work culture different from that in India?
We are very proud about the high quality of Japanese products and Kaizen is part of the manufacturing policy. Recently, Japan International Corporation Agency (JAICA) has tied up with CII, under which a training programme has been created with the help of a visiting university professor from Japan. Under this programme, they adapt the manufacturing policy of Japanese companies for Indian companies. Some managements of Indian companies are already aware about the know-how of the Japanese style of manufacturing but the worker level still needs to catch up, for which skill development and human resource development are required.
The work culture in India is very different from that in Japan as the Indian worker tries for more comfortable work conditions, high salaries and fringe benefits. If they are working for a Japanese company and dissatisfied with the emoluments, they immediately shift to another company in spite of the investments made by the employer in them towards adapting to some educational training.
So the issue of keeping good workers in production is a headache for Japanese employers. To stop such attrition calls for payment of still higher salaries, which shoots up costs.
Are labour problems on the rise in Northern India, especially in Japanese companies?
Labour problems are prevalent not only in Japanese companies but the entire manufacturing industry is facing the same issue. Oil and fuel prices are going up and inflation is rising, so everyone needs a higher salary. So the workers try to negotiate with the companies or they go on strike. This is not only at Japanese companies.
So does that imply that Japanese are not good paymasters?
The requirement of a car assembler, for instance Maruti Suzuki, from its parts supplier is for high-quality and low priced parts. So to save costs, the supplier does not easily hike salaries. But Maruti faced very severe labour problems recently. Labour unions are sometimes important to coordinate teamwork because if workers are working individually, they may have different intentions that are not good for the organisation.
So, if there are good relations between the management and workers that is reflected by the unions. Hence, it is very important to keep the relations healthy but sometimes external radical groups, who do not have any loyalty for the company, penetrate which is not a good culture here. The regular workers have at least some loyalty and will not destroy their facility otherwise they will not get their salaries. Hence, peaceful negotiations are necessary. Since India offers a huge market, players from many countries join in this market so we cannot stop this movement. Therefore, we must introduce a more comfortable condition for the Japanese companies to work in. That is where the Neemrana Japanese Zone is significant as in one estate it is easy to collaborate and exchange information, to identify irritants and create solutions amongst themselves.
Sometimes these companies discuss the issues with the state government in terms of improvements required. Labour issues can also be reduced as companies are located at close proximity and they watch closely the activities panning out in the next factory. For example, an employer paying a low salary will have to adjust against the other company’s level otherwise workers will not be happy and may strike work.
The Japanese cluster does not have any common training programme for workers at present though.
Last November, the Indian government announced the national manufacturing policy and the Japanese government was happy with it and decided to tie up with this policy. The Japanese government has set up a working group under the Ministry of economy, trade and industry to work with the Indian Department of Industrial Policy & Promotion. Since we are under the ministry, JETRO will also join the working group and would like to contribute towards the national manufacturing policy. This would include inputs on the experience of Japan, Thailand, Indonesia and Malaysia in creating the manufacturing industry, on how to encourage manpower, as also the voice of the Japanese investor located in India, what he requires to expand his operations and on HRD development.
Currently, the Haryana Urban Development Authority supplies skilled labour force for industry and to Japanese companies in the Delhi-Mumbai Industrial Corridor. So we must increase their skills further through proper training.
What are Jetro’s future initiatives to upgrade industry skills?
JETRO plans to organise a reverse exhibition next fiscal, initially at Chennai and then in the North, to facilitate vehicle assemblers to purchase parts that are difficult to procure in the local market. The assembler will exhibit components that they want to procure to auto component makers in India. This will offer a fair business chance to the assembler, who is keen to buy high quality and low-cost parts and is not restricted to only Japanese vendors which are limited (in number). For the Japanese vendors, it will also provide a good channel to bag orders from other manufacturers as well.
How do you visualise growth of Japanese companies in India, going forward?
The automotive market is growing year on year, so business opportunities are also expanding and Japanese companies plan to grow their business in India further. For small and medium enterprises (SMEs), India is very far and difficult to penetrate with a complicated tax structure and regulations. News of labour trouble also instils fear in them and entertainment opportunities like those available in Thailand, Singapore and Malaysia are absent in India. It is difficult for SMEs to send labour to India as they have to stay out of Japan for a long time which is not good as the Japanese, like Indians, are very family oriented. It is easier in China as Japan receives many students from China who learn Japanese and work for SMEs in Japan. There is technology transfer to the student and when he returns to China, the employer provides him an option of setting up a factory and running it in China. Indian students are limited in Japan because of language problems, and their dreams are realised better in the US and Europe compared to Japan.
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